Incident: In the first half of 2024, the company achieved total revenue of -5.51% to 1.389 billion yuan, net profit to mother -20.99% to 0.363 billion yuan, after deducting non-net profit of -23.26% to 0.344 billion yuan.
Key points of investment
Market transaction activity is declining, C-side business is still under pressure, and B-side revenue is relatively stable. By business, 1) The revenue from the company's Internet promotion services and fund sales business was +9.5%/-4.9% to 0.35/0.17 billion yuan, respectively; according to Wind, the average daily A-share transaction volume in the first half of 2024 was -9.48% to 853.3 billion yuan. Fluctuations in the capital market suppressed C-side demand. We expect the company's Internet promotion business revenue to lag behind and a significant increase in futures side diversion, leading to positive growth in this business revenue.
2) The company's value-added telecommunications business was -11% to 0.77 billion yuan; in the first half of 2024, the company received -7% to 1.57 billion yuan in cash from selling products and providing services; due to current market fluctuations, the price of C-side financial products falling, and investors' demand for service quality increases, we expect the company's C-side product sales to decline, and iFind's sales revenue for B-side products is relatively stable. 3) The software sales and service business was -7.2% to 0.103 billion yuan. Based on continuous updates to the brokerage system, we expect the revenue from this business to be basically stable.
Investment in promotion and R&D continues to increase, and the cost ratio is rising. 2024H1, the company's net profit margin fell 5.11 pct year on year to 26.12%. The main reason was that the company focused on model research and development, enhanced promotion efforts, and increased cost-side investment. 1) R&D expenses were +5.12% to 0.592 billion yuan, and the R&D cost rate was +4.31pct to 42.62% year over year. It is mainly due to the company concentrating resources to invest in the field of AI large models, especially in the fields of introducing professional talents and building computing power resources. 2) Sales expenses were +8.79% to 0.242 billion yuan, and the sales expenses ratio was +2.30pct to 17.45% year-on-year, mainly due to the company's efforts to expand market share and increase sales promotion efforts. 3) Management expenses were 13% to 0.114 billion yuan, and the management fee ratio was +1.36pct to 8.23% year-on-year.
The competitiveness of AI products is steadily increasing, and Tonghuashun International continues to develop. 1) The intelligent investment platform continues to be updated to help further improve product competitiveness. On August 15, 2023, based on the self-research HiThinkGPT model, the company's iFind products were continuously updated. Mobile v9.8.0 added macro forecasting functions to intelligently assist in predicting economic data; adapting to folding screen phones, bringing multi-task operation experience; “Financial Intelligence” supports functions such as smart reading of financial reports, intelligent Q&A, and multi-document interpretation to quickly meet financial report analysis requirements. Furthermore, on July 12, 2024, the company's ability to diagnose stocks was upgraded after the 1.7 version of “i Wealth” was updated, adding analysis functions for major events such as asset acquisitions, stock repurchases, and increases and decreases to support analysis of abnormal financial changes, including various aspects such as performance, expenses, and cash flow; the optimization of stock selection capabilities has enriched the logic of various stock selection questions. We believe that with the iteration of AI big model algorithms and data, and continuous investment in R&D, the competitiveness of the company's products is expected to improve, thereby further driving the company's performance growth. 2) Tonghuashun International was established in Hong Kong. Currently, the asset size is 0.49 billion yuan (foreign assets account for 7.53% of the company's net assets, +0.09pct at the end of June 2023), and revenue for the first half of 2024 is 8.29 million yuan (revenue for the first half of 2023 is 16.22 million yuan).
Profit forecast and investment rating: In the long run, based on AI empowerment, the company is expected to improve product competitiveness and drive long-term performance; however, the short-term capital market is still fluctuating, and the company's C-side business is under relative pressure in the short term; therefore, we lowered our previous profit forecast and estimated net profit to mother for 2024-2026 was 1.08/1.36/1.5 billion yuan respectively (previous value was 1.7/1.93/2.19 billion yuan), -23%/+11%, corresponding to the current stock price PE of 13/11/10 Double, maintaining a “buy” rating.
Risk warning: Business development falls short of expectations, and development of AI technology and applications falls short of expectations.