Incident: Mingyuanyun announced 24H1 results. Influenced by macroeconomics and the real estate industry in the first half of the year, the company achieved revenue of 0.72 billion yuan (YoY -5.5%). Achieved gross profit of 0.578 billion yuan (YoY -5.1%), corresponding to a gross profit margin of 80.2%, an increase of 0.3 pct; net loss of 0.115 billion yuan, a year-on-year reduction of 64.5%; adjusted net loss of 0.017 billion yuan, a sharp decrease of 82.5% year-on-year, mainly due to the further results of the implementation of cost reduction and efficiency improvement measures. The company plans to repurchase shares in the open market from time to time for a total amount of not more than HK$0.5 billion to reshape market valuation, demonstrating confidence in the company's development.

Comment: Revenue from business segments highly related to the housing market declined, and the asset management product line remained resilient. Revenue from localized software and services was 0.108 billion yuan (YoY -15.1%), and revenue from cloud services was 0.612 billion yuan (YoY -3.6%); revenue from state-owned enterprise customers increased 12.8% year over year to 0.38 billion yuan, accounting for 8.7 pct of total revenue. 1) Customer relationship management revenue was 0.441 billion yuan (YoY -6.0%), of which Yunke product revenue was 0.397 billion yuan (YoY -6.6%). New construction starts and sales in the Chinese housing market continued to decline, leading to a 9.1% year-on-year decline in the number of sales offices equipped with Cloud Guest; the customer unit price was 0.0368 million yuan/unit, up 2.8% year on year; as “video marketing” customer products met the current core business needs of customers and increased project stickiness, leading to additional purchases of some stocks and new projects, the customer account retention rate for Yunke products increased by 3 pct year on year to 88% year on year. 2) Project construction revenue of 0.062 billion yuan (YoY +4.9%), and the total number of domestic construction sites equipped with project construction products is 7,316 (YoY -1.6%), due to reduced domestic housing starts, tightening capital for residential developers, and the comprehensive impact of the expansion of state-owned non-residential developers; due to the relatively stable willingness of customers of state-owned non-residential developers to invest in digitalization and the low digital penetration rate in the industrial & infrastructure market, the unit price of construction site passenger increased to 0.0085 millions/unit (YoY +6.3%) ; The project construction customer account retention rate was 78%, a year-on-year decrease of 5 pcts.

3) The total revenue from asset management & operation is about 0.046 billion yuan (YoY +30.5%), and the total real estate property area under product management is 503.42 million square meters, an increase of 9.5% over the previous year. It is mainly due to state-owned enterprise customer real estate inventory revitalizing digital demand. 4) Skyrim PaaS platform product revenue is 0.062 billion yuan (YoY -12%), mainly because the Chinese housing market is still in a state of deep adjustment, and residential developers have reduced the procurement demand for Skyrim products and services. As of 1H24, the Skyrim PaaS platform has cooperated with more than 2,400 customers. The Skyline PaaS platform adds GPT capabilities to help improve work efficiency and accuracy; provides AIGC+ low code capabilities to greatly improve productivity and help users develop applications more efficiently.

Cost reduction and efficiency are continuing, and AI is being embraced to tap the potential for business growth. 24H1's overall expenses after excluding shares were 0.704 billion yuan (YoY -13.6%), with management expenses, R&D expenses, and sales expenses falling by 17.5%, 22.0%, and 6.5% respectively; as of the end of June '24, the number of employees in the company was 2,202 (YoY -24.7%), and the semi-annual per capita output value was 0.301 million yuan (YoY +22.9%). In the future, the company and partners will continue to explore the potential of AI models, mainly to empower and innovate in the four areas of “AI+ video marketing,” “AI+3D digitalization,” “AI+ intelligent hardware and software,” and “AI+ Skyrim PaaS platform” to create smarter and more competitive commercialized products.

Profit forecasting, valuation and rating: The company continues to expand industrial infrastructure and stock markets, optimize product layout, focus on the customer base of state-owned enterprises, and accelerate break-even by reducing costs and increasing efficiency. Since it will take time for real estate demand to recover, the 24-26 revenue forecast was lowered to 1.52/1.56/1.6 billion yuan (-8%/-11%/-13% from the previous forecast); considering the company's strengthened cost control to focus on loss reduction, the 24-26 non-GAAP net profit forecast was maintained. Maintain an “Overweight” rating.

Risk warning: customer growth falls short of expectations; real estate recovery falls short of expectations; competition in the cloud services market intensifies.