Incident: The company released its 2024 semi-annual report. 1H2024 achieved operating income of 9.325 billion yuan, a year-on-year increase of 18.91%; realized net profit to mother of 0.401 billion yuan, a year-on-year decrease of 644.59%; and realized deducted non-net profit of 0.483 billion yuan, a year-on-year decrease of 58.86%. 1H2024 revenue achieved steady growth, and the results were in line with the previous performance forecast guidance range.
Revenue achieved steady growth, and the B/C side performed well. Gross margin increased year-on-year and month-on-month in the second quarter.
1H2024, the company's B/C-side business performance was impressive. Revenue from education products and services increased by 25.14%, revenue from open platforms increased by 47.92%, smart hardware revenue increased by 56.61%, and revenue related to automotive intelligent connectivity increased 65.49%. 2Q2024's gross margin reached 41.56%, up 2.45 pcts year on year and 3.50 pcts month on month; with 1H2024, the company's revenue share of education products and services reached 30.66%, gross margin reached 51.76%, up 3.12 pcts year on year, further focusing on the main business, and product competitiveness improved.
Continuing to invest in large-scale model research and development, the national production computing power base is beginning to show results. With 1H2024, the company's sales, management, and R&D expenses decreased by 1.12 pcts, decreased by 0.60 pcts, and increased by 1.39 pcts, respectively, and R&D investment continued to increase. On October 24, 2023, the company joined hands with Huawei to announce the official launch of the first Wanka domestic computing power platform “Feixing-1”, which supports the training of models with large trillion parameters. On January 30, 2024, iFLY Spark V3.5, a 100 billion parameter model trained based on the “Flying Star 1” national computing power platform, was officially released. The performance indicators are leading in China; on June 27, iFLY Spark V4.0 based on the “Flying Star 1” was released, and the seven core capabilities were comprehensively improved, and the GPT-4 Turbo was fully benchmarked.
Spark Super Fast was released interactively, and the big model's capabilities have reached the next level. On August 19, 2024, the company released a large Spark voice model to achieve high-speed super-anthropomorphic interaction functions, and plans to launch the iFLY Spark app on August 30. This function can achieve rapid response and free interruption, emotional perception, emotional resonance, arbitrary control of expressions, and arbitrary switching of various personality settings. We believe that this ability will promote the application of large models in life scenarios, emotional support, games, etc., and accelerate the implementation of AI on the C-side.
Investment advice: The company is a leading enterprise in the field of artificial intelligence in China. Its AI technology is being implemented at the B/C end in education, healthcare, etc., and the revenue structure continues to improve. We expect the company to achieve operating income of 23.52/27.26/32.884 billion yuan and net profit to mother of 0.365/0.822/1.193 billion yuan in 2024-2026. The corresponding PE was 210/93/64 times, respectively, maintaining the “gain” rating.
Risk warning: AI technology implementation falls short of expectations; industry demand growth falls short of expectations; debt risk.