Incident: The company released its 2024 semi-annual report. In the first half of 2024, it achieved operating income of 0.705 billion yuan (-1.80%), net profit to mother 0.024 billion yuan (-43.99%), deducted non-net profit of 0.016 billion yuan (-54.58%), and net operating cash flow of 0.01 billion yuan (-86.76%). 2024Q2 achieved operating income of 0.347 billion yuan (-4.43%), net profit to mother of 0.001 billion yuan (-105.17%), net non-net profit of 0.007 billion yuan (-143.19%), and net operating cash flow of 0.018 billion yuan (-68%).
Revenue for the first half of the year fell short of expectations, the video business increased slightly, and other businesses declined: for the first time, the company's revenue declined year-on-year, lower than expected. Looking at the revenue structure, in the first half of 2024, the company's video creative business achieved revenue of 0.461 billion yuan (+1.01%), the utility business achieved revenue of 0.12 billion yuan (-5.02%), the graphic creative business achieved revenue of 0.063 billion yuan (-10%), and the digital document business achieved revenue of 0.059 billion yuan (-7.8%). From a geographical perspective, the company has been deeply involved in overseas markets for a long time. In the first half of 2024, the company achieved overseas market revenue of 0.641 billion yuan (-1.08%), accounting for 91% of total revenue, and 0.064 billion yuan (-8.57%) of the main business revenue in the Chinese market.
Costs related to AI software and hardware increased significantly, gross margin declined, performance was under pressure, and the cost ratio increased slightly during the period:
In the first half of 2024, the company's operating costs increased significantly, with a year-on-year increase of 32.62%. By project, server costs increased 44.02% year-on-year due to increased AI investment; in addition, third-party platform fees increased 16.61%; CDN acceleration fees decreased 17.02%; other costs increased 45.21% year over year, mainly the cost of purchasing AI software; overall gross margin was 93.88% (-1.51%). In terms of the cost ratio, the 2024H1 period cost rate was 90.88%, an increase of 1.4 pct compared with the same period last year; the R&D expense ratio was 29.62% (+2.82pct), the sales expense ratio was 51.71% (+1.53pct), and the management expense ratio was 10.87% (-0.8 pct), increasing investment in R&D and sales, and reasonable management expenses.
AIGC continues to innovate and upgrade, polish and enhance product competitiveness: During the reporting period, the company innovated and upgraded multiple product lines to make AIGC's functions more in line with user needs. Enhanced video creative product features: Wanxing Meowing/FilmoraV13.5 introduced innovative features such as sound reproduction, Wensheng stickers, AI animated subtitles, and curved text, improving the personalization and creative efficiency of video editing. Through AI technology, video translation and photo digital human functions have been optimized, video generation efficiency has been improved, and the number of registered users has increased. AI function expansion for mobile and cloud products: As an AIGC video creation efficiency tool, Media.io Studio, the cloud product, enables functional aggregation and linkage. Improved AI capabilities for creative drawing products: Yitu Brain Map/MindMaster has upgraded the image dyeing engine algorithm, optimized the ability to handle complex tasks, and improved the generation effect of AIGC function points. Ink knife products have introduced an AI component generation function, which allows users to quickly generate interactive components through natural language input, enriching component styles and increasing usage frequency. Intelligent development of document creative products: Wanxing PDF/PDFelement strengthens three-terminal positioning, supports more cloud functions, and improves the efficiency of file management and sharing processes. By adding functions such as OCR and form filling, the rich functionality and scene coverage of mobile products have been enhanced.
Furthermore, the company has explored a business model where AI credit consumption continues to increase, driving the possibility of AI monetization. These innovations show the depth and breadth of the company's application of AI technology, and show that the company can look forward to long-term growth.
Active efforts to improve product competitiveness and meet market demand, with the continuous penetration of AIGC applications, investment suggestions: We expect the company to achieve revenue of 1.538/1.646/1.807 billion yuan in 2024-2026, up 3.83%, 7.03%, and 9.79% year-on-year; net profit to mother is 0.094/0.111/0.136 billion yuan, respectively, up 9.52%, 17.95%, and 22.43%; EPS is 0.69/0.81/ 0.99 yuan. The current stock price corresponding to 2024-2026 PE is 68.85/55.83/45.60 times, maintaining the “recommended” rating.
Risk warning: the risk that overseas demand falls short of expectations, the risk that AIGC technology research and downstream application space falls short of expectations, and the risk of uncertain trade policies.