The company announced 1H24 results, and the results were in line with the forecast
1H24's revenue was 9.32 billion yuan, +18.9% year over year; the company's R&D investment increased, and 1H24 net profit decreased by 0.47 billion yuan to -0.4 billion yuan year on year; net profit after deducting non-return to mother decreased by 0.18 billion yuan to -0.48 billion yuan year on year, and the performance was in line with forecast. 2Q24 achieved revenue of 5.68 billion yuan, +14.6% year over year, net profit to mother decreased by 0.23 billion yuan to -0.1 billion yuan year on year, and net profit after deducting non-return to mother decreased by 0.077 billion yuan to -0.04 billion yuan year on year.
Development trends
Revenue growth was impressive, sales repayments were optimized, and R&D investment put pressure on short-term profits. On the 1H24 revenue side, 1) education revenue was 2.86 billion yuan, +25.1% year over year; 2) medical revenue was 0.23 billion yuan, +18.8%; 3) open platform and consumer business revenue was 3.51 billion yuan, +44.9%; smart hardware revenue was 0.9 billion yuan, +56.6% year over year; developer ecosystem revenue was 2.35 billion yuan, +47.9% year over year. 4) Smart car revenue of 0.35 billion yuan, a year-on-year increase of +65.5%. On the profit side, the company's 1H24 gross margin was basically flat at 40.2%; during the reporting period, the company's R&D expenses increased by 32.3% year on year. At the same time, a combination of factors such as investment income and fair value changes put pressure on the profit side in the short term. Net profit loss to mother turned to -0.4 billion yuan, and loss after deducting non-net profit increased to -0.48 billion yuan. On the order side, 1H24 had a contract debt of 1.14 billion yuan, +17.6% year over year. On the cash flow side, the company received 9.01 billion yuan in cash from selling goods and providing services during the reporting period, an increase of 20.0% over the previous year.
C-end hardware is highly competitive, and the importance of going overseas is rising. The competitiveness of the company's AI learning machines and intelligent hardware is outstanding. The GMV of the company's C-side hardware products increased 43% year-on-year during the entire 618 cycle. According to the interim report, the company is actively expanding overseas markets, and smart hardware products have received a good market response in overseas regions. In addition, the revenue of the 1H24 open platform has increased, partly driven by overseas advertising business. The company is actively expanding cooperation with overseas developers, manufacturers and leading aggregation platforms, and the average daily PV has exceeded 10 billion dollars.
Domestic computing power supports the upgrading of the Spark Model's capabilities, and the acceleration of education and the implementation of central state-owned enterprises. 1) In the education scenario, the company implemented Spark Model technology in after-school management and the C-end core product “Personalized Learning Manual”, and the new teaching functions were widely used in key high schools in various regions. 2) In the scenario where AI is implemented in central state-owned enterprises, the iFLYTEK model is leading the pace of implementation in central state-owned enterprises. It has cooperated with leading companies such as China Energy Group, CNPC, China Mobile, China Insurance, and Bank of Communications. 3) In terms of computing power, the company's ability to build domestic computing power clusters is leading domestically, and the shortage of computing power is expected to be alleviated in the second half of the year.
Profit forecasting and valuation
We are optimistic about the competitive advantage brought by the company's large model capabilities and card slots in application scenarios, and maintain the company's ratings to outperform the industry. Considering the company's firm R&D investment compounded by the downturn in the industry center, we lowered our 2024/2025 profit forecast by 22.9%/19.7% to 0.696/0.997 billion yuan, and the target price was reduced by 22.4% to 45 yuan (based on the 2024 SOTP), which has 32.3% upside compared to the present.
risks
Large-model development costs fell short of expectations; market competition intensified.