Investment event: On August 10, 2024, the company released its 2024 interim results report. During the reporting period, the company achieved operating income of 0.781 billion yuan, a year-on-year increase of 6.53%; realized net profit to mother of 0.118 billion yuan, a year-on-year decrease of 52.92%; and realized deducted non-net profit of 0.123 billion yuan, an increase of 6.58% over the previous year.

Q2 Performance is under pressure, and R&D investment is high. During the reporting period, the company achieved a total operating income of 0.781 billion yuan, a year-on-year increase of 6.53%; realized net profit to mother of 0.118 billion yuan, a year-on-year decrease of 52.92%; and realized deducted non-net profit of 0.123 billion yuan, an increase of 6.58% over the previous year. Among them, Q2 achieved operating income of 0.357 billion yuan, an increase of 2.01% year on year; realized net profit of 0.034 billion yuan, down 81.98% year on year, mainly due to the impact of reduced income from fair value changes in the Henan Lantian Xinchuang Industrial Investment Fund held by the company; and deducted non-net profit of 0.053 billion yuan, a year-on-year decrease of 11.14%.

During the reporting period, the company continued to increase investment in R&D, and R&D expenses increased by 33.4% year on year.

Integrated into the Huawei Hongmeng ecosystem, the cloud and big data business maintained steady growth. By business line, the collaborative office product line achieved revenue of 0.245 billion yuan, an increase of 13.22% over the previous year, and Rich AiBox achieved successful commercial use; the smart channel product line achieved revenue of 0.308 billion yuan, an increase of 1.46% over the previous year. The company officially signed a contract with Huawei in the first half of 2024, reached Hongmeng cooperation, and built a complete Hongmeng App development framework to guarantee security from multiple dimensions such as application, data, and terminals to support customers in developing various Hongmeng mobile apps; Cloud and Da The data product line achieved revenue of 0.189 billion yuan, an increase of 11.57% over the previous year. In the field of cloud services, it supports users to develop AI functions for C-side cloud products and build intelligent assistants for cloud disks, and continuously accumulate AI capabilities.

Fully embrace the AI ecosystem and fully integrate AI capabilities in the fields of products, operations, and computing power. In terms of products, the company incorporated the core RichMail product into AI capabilities, developed active service capabilities for secretaries, information integration processing capabilities, and cross-domain information acquisition and storage capabilities, and built a digital image customization platform, AI online choreography, digital live streaming platform, and metaverse business offices in the field of smart channels to meet customers' multi-scenario business innovation needs; in terms of operation services, the company built Rich AIBox, a one-stop AI application platform, which can achieve unified access to multiple large models, seamless connection of private domain knowledge bases, and multiple scenarios Intelligent visual orchestration; In terms of computing power, the company and ecological partners have jointly developed Rich AIBoost, a next-generation AI computing power cluster management platform, to provide customers with stable and expandable AI technology platform capabilities through distributed computing, flexible workflow systems, intelligent scheduling, and cluster resource management. In July 2024, the company participated in the signing ceremony of the Mobile Cloud AI Big Model Joint Program, and will focus on integrating and building an AI intelligent application ecosystem in the future.

Investment proposal: Caixun shares benefit from major industry trends such as AI intelligent application construction, state-owned cloud growth, 5G technology promotion, and metaverse digital people. It is deeply integrated into Hongmeng and mobile cloud ecosystems, and vigorously invests in AI technology research and development. It is expected to continue to create value and achieve sustainable steady growth in the long term. Considering factors such as changes in the macroeconomic situation, the company's downstream customer budget may have shrunk. We expect the company to achieve revenue of 1.732/2.031/2.466 billion yuan in 24/25/26 (previous value of 1.809/2.18/2.624 billion yuan), an increase of 15.8%/17.3%/21.4% year-on-year; considering that the company is in a period of large-scale investment in AI technology, the cost rate is expected to continue to decline in the future, and the company is expected to achieve net profit of 0.321/0.417 in 24/25/26 /0.514 billion yuan (previous value 0.391/0.476/0.573 billion yuan), a year-on-year increase of -1.2%/30.2%/23.1%. Considering the high quality of the company's track and the high growth potential of related technology and business layout, we gave the company a “buy” rating.

Risk warning: AI technology implementation falls short of expectations, business progress is not as fast as expected, competition intensifies, etc.