Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 0.781 billion yuan, a year-on-year increase of 6.53%, and achieved net profit of 0.118 billion yuan, or -52.92% year-on-year, after deducting non-return net profit of 0.123 billion yuan, an increase of 6.58% over the previous year.

The three core businesses are growing steadily, and AI capabilities are deeply integrated. In the first half of '24, the company's three product lines achieved revenue of 0.245, 0.308, and 0.189 billion yuan respectively, with year-on-year increases of 13.22%, 1.46%, and 11.57%. By business, the collaborative office business maintains the core of Xinchuang email, combined with generative AI capabilities, to create digital employee products based on AIBox, and continue to expand large customers in the fields of operators, electricity, finance, etc.; the smart channel core business stock business is growing steadily, customer stickiness is strong, and it invests heavily in AI+ digital human product development, including digital image customization platforms, AI online choreography, digital human live streaming platforms, and metaverse business offices to meet customers' multi-scenario business innovation needs; the cloud and big data business services continue to maintain stable high-quality delivery to support customers in developing C-end cloud product AI The function implements more than 20 AI algorithms.

Net profit attributable to mother was affected by profit and loss due to changes in fair value, and net profit after deducting non-net profit continued to grow steadily. In the first half of '24, the company's net profit to mother was 0.118 billion yuan, a year-on-year decrease of 52.92%, mainly due to a decrease in fair value change income from the Henan Lantian Xinchuang Industrial Investment Fund held by the company. After deducting non-net profit of 0.123 billion yuan, maintaining 6.58% year-on-year growth, the core business remains steady. The company announced the 2024 restricted stock incentive plan in June. It plans to grant no more than 6 million shares to the company's core employees. The assessment target is that net profit deducted from non-return to mother in 24-26 years will not be less than 16%/34.56%/56.09% compared to 23 (that is, 16% compound annual growth rate), demonstrating the company's confidence in maintaining long-term steady operation.

The active layout of new business directions is expected to bring about long-term growth. The company is actively expanding the field of new business engines and smart channels. The company is the core ecological partner of Huawei Hongmeng, built a complete Hongmeng App development integration framework, built a complete Hongmeng App client technology architecture system, and supported customers to develop a variety of Hongmeng mobile apps.

In the context of the continuous development of Hongmeng NEXT OS in the future, it is expected to bring more opportunities to the company. In the field of computing power, the company and ecological partners have jointly developed Rich AIBoost, a next-generation AI computing power cluster management platform. It is specially designed for AI computing power clusters, making it easy for users to fully use GPU cluster computing resources for large-scale AI development and deployment.

These new business directions are expected to add value to the company's long-term development.

According to the 23 annual report and 24 mid-year report lowered the company's operating income and gross margin forecast, we predicted that the company's earnings per share for 24-26 would be 0.54/0.66/0.78 yuan (the original 24-25 forecast was 0.81/1.03 yuan), respectively. The company was valued 29 times in 24 years based on comparable company valuation levels, and the corresponding target price was 15.66 yuan, maintaining the purchase rating.

Risk warning

The implementation of Xinchuang fell short of expectations; the implementation of AI technology fell short of expectations; the development of operator business fell short of expectations; the risk of single customer revenue being relatively high; profit and loss from changes in fair value fell short of expectations