Incident: On August 23, Flush released the 2024 semi-annual report, which was in line with expectations. 1H24 achieved net profit of 0.36 billion yuan/yoy -21.0%, deducted non-net profit of 0.34 billion yuan/yoy -23.3%, and achieved operating income of 1.39 billion yuan/yoy -5.5%.
Under the slump in the market, value-added telecommunications services are under pressure, and advertising business revenue is growing against the market. 1) Looking at the revenue structure: 1H24's value-added telecom service business, advertising and internet promotion business, software sales business, fund sales business and other businesses achieved revenue of 7.7, 0.35, 0.1, 0.17 billion yuan, respectively, compared with -11.0%, +9.4%, -7.2%, and -4.9%, respectively, accounting for 55.3%, 25.2%, 7.4%, and 12.1% of revenue, respectively. 2) Positive increase in advertising revenue: Since the company's advertising business revenue is highly correlated with market turnover, considering the average daily share base turnover of the 1H24 market yoy -7%, the company's advertising business revenue is expected to increase against the market mainly due to the stable advantages of the Tonghushun platform and high customer stickiness.
The company continues to increase investment in AI technology and sales promotion efforts, and rate increases are dragging down the company's profit performance. In the first half of 2024, the company strengthened the integration of AI with existing business, and launched products in various fields such as big model+financial investment, intelligent customer service, intelligent investment research, and code generation; 1H24's R&D expenses were 0.59 billion/yoy +5.1%, and the R&D cost rate reached 42.6% /yoy+4.31pct.
In addition, in order to expand market share, the company increased its marketing and promotion efforts, 1H24 sales expenses were 0.24 billion/yoy +8.8%, and the sales expense ratio was 17.4% /yoy+2.29pct.
Value-added telecom services are clearly resilient, and they are optimistic about the monetization of C-side AI applications. Looking at the software sales situation, 1H24's cash inflow from selling products and providing labor was 1.57 billion/yoy -7.0% (consistent with market ADT performance), and 1H24's final contract debt was 1.2 billion yuan/+9.1% compared to the end of 23. The reverse increase in contract debt is expected to be mainly due to fewer new users, a decline in short-term product sales, and iFind contributions under the market downturn, laying the foundation for subsequent revenue recognition. In terms of customer resources, the total number of registered users of Tonghuashun Financial Service Network at the end of 1H24 was 0.63 billions/+0.3% compared to the beginning of the year, and the monthly activity of the Tonghuashun Stock Trading App reached 31.59 million/ +3.6% compared to the beginning of the year. The advantage of customer resources is obvious. Looking at product iterations, the company's C-side AI applications continued to be implemented during the reporting period. Currently, Tonghuashun Finance has been iterated to version 1.7, adding AI functions such as stock identification and event analysis. It is expected to become a new revenue point for the value-added telecom business in the future.
The downturn in the fund market dragged down the performance of the consignment business and built an Internet intelligent financial management service platform. In the first half of 2024, the company established a comprehensive wealth management product and service supply system to meet the one-stop needs of different investors for comprehensive wealth management by providing diversified financial management scenarios; the 1H24 company's fund sales and other business revenue was 0.17 billion/yoy -4.9%, and the balance of other accounts payable by the company at the end of 1H24 - proxy trading fund balance was 0.52 billion yuan/19.4% compared to the end of 23, mainly due to the fund market remaining sluggish (the share of new equity funds in the 1H24 market was only 57 in the same period last year) %).
Investment analysis: The expected net profit for the year 2024-2026 will be 1.16, 1.37, and 1.55 billion yuan, or -18%, +19%, and +13% compared to the same period last year. The 24/8/23 closing price corresponds to the 2024-2026E dynamic PE valuation of 44.6x, 37.5x, 33.3x.
Risk warning: A-share market trading is sluggish; iFind sales growth falls short of expectations; financial model updates and iterations fall short of expectations.