Core views

Looking at the main business, the game and IDC business are steady and have achieved month-on-month growth. If the marketing business enters a profit cycle, it is expected to bring about flexible performance. Looking at games, the boutique strategy promoted the steady development of games. Sales expenses declined slightly from the second quarter, and purchasing pressure slowed down. Looking at IDC's business, the Beijing Sijiqing Data Center still has room to increase its power rate. It is recommended to continue to monitor sales conditions and the construction progress of the Hangzhou Dajiangdong data center project.

Innovative businesses are still expected to unlock the company's future development potential. Both the transmission brain and the large vertical model of the Hangzhou Urban Brain have been registered online, and commercialization is expected to advance steadily.

The construction of special zones at the Zhejiang Big Data Trading Center continues to increase, and data supply will also increase. As future data element policies further refine the requirements for core aspects such as registration, pricing, and trading, when the industry explodes in the future, the company's existing zone construction will be an important foundation for benefiting from the growth of the industry.

We expect the company to achieve net profit of 0.509/0.554/0.584 billion yuan in 2024-2026, a year-on-year ratio of -23.22%/+8.80%/+5.42%. The PE corresponding to the closing price on August 12, 2024 is 20.54/18.88/17.91x.

occurrences

According to the 2024 semi-annual report, during the reporting period, the company achieved revenue of 1.413 billion yuan, a year-on-year decrease of 16.36%; net profit to mother of 0.147 billion yuan, a year-on-year decrease of 76.71%; and net profit of 0.203 billion yuan after deduction, a year-on-year decrease of 58.96%.

In the second quarter of 2024, the company achieved revenue of 0.734 billion yuan, a year-on-year decrease of 4.03%; net profit to mother was 0.048 billion yuan, a year-on-year decrease of 86.71%; net profit after deduction was 0.131 billion yuan, a year-on-year decrease of 59.71%.

1. The decline in Wingman Internet profits was affected by social contraction, and Fuchun Cloud was stable year-on-year

In the first half of 2024, there were two main reasons for the decline in the company's net profit after deduction: 1) The strategic contraction of the social networking business. The business was still in the contraction phase in the first half of 2023, and only came to an end in the third quarter. As a result, the decline in profits was due in part to a sharp year-on-year decline in the contribution of the social business in the first half of 2024. 2) Significant reduction in return on investment. In the first half of 2023, the company's net investment income was 0.193 billion yuan, and the net income from changes in fair value was 0.139 billion yuan, totaling 0.332 billion yuan. In the first half of 2024, net income from investment and net income from changes in fair value were -0.023 billion yuan and -0.82 billion yuan, respectively, for a total of -0.105 billion yuan.

Judging from the core subsidiaries that contributed to performance, Wingman Network and Fuchun Cloud both achieved month-on-month growth. The development status of each core business is as follows:

Winger Network: Revenue for the first half of 2024 was 0.999 billion yuan, down 26.67% year on year, but up 17.67% month on month; net profit was 0.257 billion yuan, down 37.16% year on year, but up 11.43% month on month. The company's social networking business was still in the strategic contraction stage in the first half of last year, so the decline was mainly due to the year-on-year decline in social networking business. However, the gaming and marketing business remains strong. Among them, the game business continues to implement a boutique strategy. Winger Whipped Egg Daily has surpassed 1 million at the beginning of this year, and added more than 13 million new registered users in the first half of the year; in terms of marketing, Jiutian Interactive and other subsidiaries have obtained commercial advertising agency qualifications from many leading platforms. Looking ahead to the whole year, the game boutique strategy promoted the steady development of games. Sales expenses declined slightly from month to month in the second quarter, and the pressure on purchasing volume slowed down; optimistic about the marketing business will bring new business growth to the company.

Fuchun Cloud: In the first half of 2024, revenue was 0.196 billion yuan, up 4.79% year on year, up 2.22% month on month; net profit was 0.043 billion yuan, up 5.21% year on year, up 36.04% month on month. Judging from the performance, its Hangzhou Fuyang Data Center maintains a high electricity supply rate, while the Beijing Sijiqing Data Center still has room to increase its electricity usage rate, and the company continues to increase sales efforts. Furthermore, according to the announcement, Fuchun Cloud is focusing on the combination of IDC energy saving and large models to explore the development of AI smart energy saving platforms. It is recommended to continue to monitor the sales situation of the Beijing data center and the construction progress of the Hangzhou Dajiangdong data center project.

Looking at the digital technology business, the big vertical model of Communication Brain and Hangzhou Urban Brain have all been registered online. According to the announcement, the company's two major models have all passed the online registration. Among them, the communication model developed by Communication Brain Technology Company became the first media-exclusive large-scale model developed by a media technology company in the country and successfully passed the filing. Hangzhou City Brain Co., Ltd.'s social governance big model algorithm passed the National Internet Information Office's domestic in-depth synthesis service algorithm registration.

In terms of data operation business, the construction of a special area for the Zhejiang Big Data Trading Center continues to increase. The trading center launched the Nanhu Zone, the Cultural Tourism Data Zone, and the Southeast Zhejiang Industrial Data Zone during the reporting period. As a result, data supply continued to grow. As future data element policies further refine the requirements for core aspects such as listing, pricing, and trading, when the industry explodes in the future, the company's existing zone construction will be an important foundation for benefiting from the growth of the industry. In the future, we will continue to monitor the progress of business information changes and registration of the Zhejiang Big Data Exchange Center.

2. Financial analysis

The company's expenses were well controlled during the first half of the year. In the second quarter of 2024, the cost rate for the period was 39.79%, a year-on-year decrease of 5.37 cpt, the lowest level since 2023, mainly due to a decline in management expenses and R&D expenses. Among them, the sales expense ratio was 18.21%, a year-on-year decrease of 0.23pct; the management expense ratio was 11.15%, a year-on-year decrease of 3.20pct; and the R&D expense ratio was 11.69%, a year-on-year decrease of 1.16pct.

Investment advice: Looking at the main business, the gaming and IDC businesses are still stable. If the marketing business enters a profit cycle, it is expected to bring about flexible performance. Looking at games, the boutique strategy promoted the steady development of games. Sales expenses declined slightly from the second quarter, and purchasing pressure slowed down. Looking at IDC's business, the Beijing Sijiqing Data Center still has room to increase its power rate. It is recommended to continue to monitor sales conditions and the construction progress of the Hangzhou Dajiangdong data center project.

Innovative businesses are still expected to unlock the company's future development potential. Both the transmission brain and the large vertical model of the Hangzhou Urban Brain have been registered online, and commercialization is expected to advance steadily. The construction of special zones at the Zhejiang Big Data Trading Center continues to increase, and data supply will also increase. As future data element policies further refine the requirements for core aspects such as registration, pricing, and trading, when the industry explodes in the future, the company's existing zone construction will be an important foundation for benefiting from the growth of the industry.

We expect the company to achieve net profit of 0.509/0.554/0.584 billion yuan in 2024-2026, a year-on-year ratio of -23.22%/+8.80%/+5.42%. The PE corresponding to the closing price on August 12, 2024 is 20.54/18.88/17.91x.

Risk analysis

The risk of macroeconomic fluctuations, the risk of data transaction pilot policies falling short of expectations, the risk of tightening privacy protection policies, the risk of data transaction supervision, the risk of data resource prices rising, the risk that the fair value of data is difficult to determine, the risk of data supply falling short of expectations, the risk of customer demand falling short of expectations, the risk of customer backgrounds facing regulatory risks, the risk of data transaction infrastructure construction falling short of expectations, the risk of encryption algorithms being breached, the risk of disclosure of personal privacy, the risk of increased competition among exchanges, the risk of data service providers facing strict qualification supervision, failure of business model innovation Risk, risk of loss of core talent, risk of intellectual property protection.