Incident: The company released its 2024 semi-annual report. 1H2024 achieved operating income of 2.836 billion yuan, a year-on-year increase of 0.32%; realized net profit to mother 0.03 billion yuan, a year-on-year decrease of 93.30%; and realized deducted non-net profit of 0.136 billion yuan, a year-on-year decrease of 48.81%.

The securities fund industry experienced a painful period, and the company's asset management technology business performed well. Currently, the capital market is in a painful period of historic transformation. With the upgrading of regulatory and compliance requirements, new businesses related to securities funds are not yet mature. Currently, investment in fintech is still cautious, and future applications of Xinchuang and big models are expected to bring new opportunities. 1H2024, the company's asset management technology business revenue increased 9.17% year on year, mainly benefiting from the growth of the investment trading system. Products such as O45, Fusion China, and Summit all achieved breakthroughs.

Remarkable results have been achieved in improving quality and efficiency, and large model products continue to be upgraded. With 1H2024, the company's sales, management, and R&D expenses decreased by 0.95 pcts, 0.57 pcts, and 0.46 pcts respectively. By the end of the first half of the year, the total number of employees was 12,700. Compared with the total number of employees at the end of last year, the talent structure was continuously optimized, and the results of improving quality and efficiency were remarkable. In terms of large models, the integrated technology base for investment and research continues to be upgraded, and Warren Q has carried out extensive trial activities throughout the industry, initially forming a co-creation ecosystem.

Release a stock option incentive plan to rally the team to boost confidence. The company issued a stock option incentive plan, granting 34 million stock options to 1,400 incentive recipients, including directors, senior management, and other core management, technical, and business personnel. The company-level performance assessment goals are based on net profit (minus) for 2023, 2024, and 2025, respectively. The net profit (minus negative) growth rate for the next year will not be less than 10%, boosting confidence in growth.

Investment advice: The company is a leader in the domestic financial IT industry and will fully benefit from AI technology changes and capital market reforms. We predict that the company will achieve revenue of 7.501, 8.514, and 9.727 billion yuan in 2024-2026, and achieve net profit of 1.576, 1.853, and 2.147 billion yuan, corresponding to the current PE valuation of 19x, 16x, and 14x, respectively, to maintain a “gain” rating.

Risk warning: Financial policy progress falls short of expectations; promotion of new products falls short of expectations; commercialization of AI falls short of expectations.