1H24 results fall short of our expectations
The revenue ratio of Tonghuashun 1H24 was -5.5% to 1.39 billion yuan, net profit to mother was -21.0% to 0.36 billion yuan, and net profit after deduction was -23.3% to 0.34 billion yuan, lower than our expectations. This was mainly due to the impact of investor demand in a weak market environment, compounding that the company reversed the market and increased R&D and sales investment.
2Q24 single-quarter revenue -10.5% year-on-year to 0.77 billion yuan, net profit -23.2% year-on-year to 0.26 billion yuan development trend
The revenue side declined due to market influence, but there was no shortage of small highlights. 1) Advertising and internet promotion services grew against the market, and 1H24 revenue was +9% to 0.35 billion yuan. We believe that the futures diversion business is probably the main driver of growth (QM monitors the average MAU of the Tongflushun Futures App +43% to 1.07 million people); in addition, in the context of declining market activity (A-share market share base trading volume -8%), the activity of Tonghushun users is relatively stable - the company announced that the daily activity/weekly activity of the free online market client was -2%/-2% to 14.39/19.21, respectively The average MAU for million people and the QM monitoring app was +9% compared to 30.24 million people. 2) Fund sales and other business performance were superior to peers; 1H24 revenue was -5% to 0.17 billion yuan; the Tonghua Shunai Fund platform connected to funds and brokerage firms +7% to 250 compared to the same period, and the affiliate fund products and asset management products were +14% to 21,373 units. Under the influence of fee cuts and the market (1H Xinfa Equity Fund share -35%, equity fund net value -9% YoY /2% compared to the beginning of the year). We estimate that Tonghuashun or the company's shareholders' shareholders' base will benefit Fund sales. 3) Revenue from the value-added telecommunications business was -11% to 0.77 billion yuan. Among them, sales of TOC stock trading software were dragged down by a decline in investors' demand for financial information services due to market fluctuations (the company received -7% of cash from 1H24 sales of products and labor provision), and revenue from the To B financial data terminal iFind business grew steadily. 4) Revenue from software sales and maintenance was -7% to 0.1 billion yuan, or partly affected by the pace of receipts and revenue recognition. In addition, the company's forward-looking index of advance payments (contract debts+other non-current liabilities) was +8% YoY /+7% compared to the beginning of the year to 1.3 billion yuan, or provided some support for subsequent revenue recognition.
The profit side was hampered by a reversal of the market and increased investment in R&D and sales. 1H24 R&D expenses were +5% to 0.59 billion yuan/cost ratio +4.3ppt to 42.6% year over year, which means that the company increased investment in large AI models (especially in fields such as introduction of professionals and construction of computing power resources); sales expenses were +9%/cost ratio +2.3ppt to 17%, which was to expand market share and increase sales promotion efforts (especially on the B-side).
AI product capabilities have deepened, and the company has now launched products in various fields such as big model+financial investment, big model+intelligent customer service, big model+intelligent investment and research, big model+code generation, big model+legal consulting, and big model+office assistant. Looking ahead, we believe that the company's revenue structure will continue to be optimized, and advantages such as traffic/technology/product/ecology will continue to be consolidated, and we will wait for performance and valuation to release high elasticity as the market improves.
Profit forecasting and valuation
Considering that the business was affected by the market and cost side investment increased, the 24/25 profit was reduced by 26%/31% to 1.23/1.43 billion yuan. The company is currently trading at 42x/36x 24/25e P/E; the target price was lowered by 19% to 135 yuan, which corresponds to 59x/51x 24/25e P/E and 41% upward space; maintaining an outperforming industry rating.
risks
The market fluctuates greatly, regulatory uncertainty, industry competition intensifies, and progress in AI implementation falls short of expectations.