24H1 revenue grew steadily and maintained a clear loss reduction trend. The company announced its results for the first half of 2024. 2024H1, the company's total revenue was 1.867 billion yuan, up 27.1% year on year; gross profit was 0.79 billion yuan, up 12.1% year on year. On the basis of guaranteeing high R&D investment, a clear loss reduction trend continued. 2024H1 R&D investment was 0.85 billion yuan, and the R&D expense ratio was 45.5%; the adjusted net loss amount narrowed 4.0% year on year, and the adjusted net loss rate narrowed to 9.0% year on year. Thanks to the Prophet product matrix and large-scale application of large-scale industry models, the company's core business, the Prophet AI platform, continued to grow strongly, with revenue of 1.251 billion, an increase of 65.4% over the previous year, accounting for 67.0% of total revenue. 2024H1, this business has supported large-scale application of industry models in 14 industries, helping improve the core competitiveness of enterprises. At the same time, the ecosystem of the fourth paradigm industry continues to expand. Through the “Prophet Inside Model”, artificial intelligence technology has been commercialized, and more than 30 artificial intelligence products have been efficiently produced for various industries. As of August 1, 2024, it has covered various scenarios such as R&D, production, supply and marketing services in more than 20 industries, and continues to expand the boundaries of artificial intelligence applications. 2024H1, the company's customer base is also becoming more and more diverse. It has covered 14 industries, with a total number of 185 users and 86 benchmark users. The average revenue of the benchmark user group is 11.48 million yuan, an increase of 26.9% over the previous year. In addition, 2024H1, the company's SHIFT intelligent solution business revenue was 0.453 billion yuan, down 22.1% from the previous year, accounting for 24.3% of total revenue. This is mainly affected by the business development strategy. Since the 24H1 business development focus is mainly on the Prophet AI platform, the development and development of SHIFT intelligent solutions will all support the growth of the Prophet AI platform business. 2024H1, according to the corporate style, AIGS service business revenue was 0.163 billion yuan, up 25.0% year on year, accounting for 8.7% of total revenue. The business provides efficient development tools and services based on generative AI for the Prophet AI platform business.

Through the “Prophet Inside Model”, we help AI land in thousands of industries. The Prophet AI platform is the core of all businesses in the fourth paradigm. It has evolved from version 1.0 to version 5.0 in 10 years of development. 2024H1 has supported 14 major industries, including transportation, data centers, finance, energy and electricity, operators, information technology, intelligent manufacturing, retail, etc. Efficiently empower enterprises to digitally transform in multiple scenarios and steadily promote large-scale application of artificial intelligence technology in various industries. 2024H1, based on the capabilities of the “Fourth Paradigm Seer AI Platform 5.0”, the company has efficiently constructed major industry models in many fields such as academic translation, health management, hydropower management, water conservancy, 3D aided design, supply chain, and fluid dynamics. 2024H1, the company adheres to technological innovation. Through the “Prophet Inside Model”, the core technology within the Prophet AI platform is used as an engine to combine the multi-scenario requirements of different industries to create intelligent products or solutions. The “Seer Inside Model” uses the basic artificial intelligence capabilities of the Prophet AI platform to commercialize and construct an artificial intelligence product matrix that can be applied to different scenarios. It uses a “fan ecosystem” with artificial intelligence products as the core to help ecological partners and their products achieve double growth in service quality and efficiency, and expand the form of artificial intelligence technology empowering thousands of industries. 2024H1, based on the core capabilities of the “Prophet AI Platform”, the company worked with “Fan Ecology” partners to efficiently build more than 30 artificial intelligence products. As of August 1, 2024, it has covered various scenarios such as R&D, production, supply, and marketing services in more than 20 industries. It involves artificial intelligence technology fields such as large model speech synthesis, physical simulation, multi-modal generation, AutoML visual inspection, and search and promotion. Various artificial intelligence products released by the company, such as the AI digital human video synthesis platform, vGPU resource pooling, 5G video marketing, AI quality inspection systems, and 3D scanning and modeling equipment, have formed multi-scenario applications among enterprise customers.

SHIFT intelligent solutions and AIGS services focus on solving practical problems and provide important support for core business. In the field of the SHIFT intelligent solutions business, the company has launched application products such as the integrated platform “Tianshu”, the large model management platform ModelHub, data search, intelligent question count, and software operation assistant (Copilot). Take Tianshu as an example. The product integrates rich high-dimensional machine learning algorithms in the Prophet AI platform and the high-performance ultra-high-dimensional AI framework GDBT to achieve excellent business results in many search, recommendation, and push scenarios. A global restaurant chain group increased the unit price of app customers by 2% and increased annual sales by hundreds of millions of yuan based on Tianshu's personalized promotion and intelligent product recommendation capabilities. Meanwhile, in the AIGS service business field, the company also released AIGScodex, an enterprise-level programming assistant product based on the Prophet AI platform with big language model capabilities as the core. 2024H1, the company continues to iterate and optimize product features, and pays more attention to providing developers with efficient and convenient operating habits and programming experience. At the functional level, the product further optimizes the immersive coding experience. Developers do not need to leave the development environment to directly query required business and technical documents, and improve the efficiency and quality of code writing. In terms of model effects, the product has built an architecture system with multiple model combinations and flexible switching to improve performance in processing complex business scenarios, and is more advantageous in dealing with diverse data structures and business logic. We believe that although SHIFT intelligent solutions and AIGS services account for a relatively small share of the company's overall business, these two businesses are an important complement and support to the company's Prophet AI platform. The two businesses currently focus on solving practical problems and provide important support for the development of the company's core business.

The Prophet AI platform continues to be iterated, and the “Prophet AIOS 5.1” upgrade supports GPU resource pooling. On July 23, the company further released Prophet AIOS 5.1. This version adds GPU resource pooling (vGPU) capabilities to enable platform-based management of hardware clusters, on-demand allocation and rapid scheduling of computing power resources, saving up to 80% of hardware costs and increasing the overall GPU utilization rate by 5-10 times. In the process of building the industry's big model, in order to further improve the utilization of computing power resources, the fourth paradigm prophet AIOS 5.1 version added GPU resource pooling (vGPU) capabilities, and has five major technical highlights: (1) fully adapting domestic/non-domestic computing power, supporting hybrid deployment and unified scheduling; (2) excessive multiplexing of computing power and video memory, with detailed computing power segmentation to 1%, and video memory segmentation in M megabytes; (3) supports customized isolation strategies to achieve exclusive or shared computing power pools; (5) Using multi-tasking sharing and Processing optimization technology improves inference performance by more than 10 times. In the future, the company will continue to use technological innovation as support, export a high-quality product matrix, build an AI product ecosystem, and diversify artificial intelligence application efficiency and core competitiveness in thousands of industries while promoting business growth. We believe that the company's Prophet AI platform is still in the process of continuous iteration, its technical strength and industry competitiveness are also constantly improving, the company's future business development moat continues to improve, and the company's future growth is worth looking forward to.

Profit forecasting and investment advice. We believe that the company's revenue grew steadily in the first half of 2024, maintaining a clear loss reduction trend, and continued to confirm the viability of the company's current business model. Currently, the company is focusing on using “commercialization of AI technology” to help implement AI in thousands of industries through the “Prophet Inside Model”, and the company's long-term growth is worth looking forward to. Combining various factors, we gave the fourth model 6-7 times PS in 2024, corresponding to the company's reasonable value range of HK$74.21-86.58 (1 HKD = RMB 0.9158; the exchange rate reference date is August 21, 2024), maintaining the “superior to the market” rating.

Risk warning. Risks that AI development falls short of expectations; risks that AI commercialization falls short of expectations, etc.