Core views
On August 24, 2024, the company disclosed its 2024 interim results: the company achieved revenue of 1.39 billion yuan in the first half of 2024, a year-on-year decrease of 5.5%; realized net profit without deducting the effects of financial expenses of 0.34 billion yuan, a year-on-year decrease of 23.3%; net profit without deducting financial expenses was 0.19 billion yuan, a year-on-year decrease of 42.3%. Among them, the advertising business bucked the trend and grew by +9.5%, and other businesses were pressured by the decline in investor demand; at the same time, the company focused on R&D investment during the period, and is expected to open up a new growth pole for the company's “AI+ Finance” in the future through the integration of large models and products and services.
occurrences
The company released its 2024 semi-annual report, achieving operating income of 1.389 billion yuan, YoY -5.51%; net profit attributable to mother 0.363 billion yuan, YoY -20.99%; net profit after deducting non-attributable net profit of 0.344 billion yuan, YoY -23.26%. 24Q2 achieved revenue of 0.771 billion yuan, YoY -10.46%; net profit to mother of 0.259 billion yuan, YoY -23.15%; net profit after deducting non-attributable net profit of 0.245 billion yuan, YoY -26.28%. The performance was in line with expectations.
Brief review
The company's revenue was stable, profits were under pressure, and R&D investment increased by 4.31 pct. In the first half of 2024, the company actively responded to the severe market environment and achieved operating income of 1.389 billion yuan, a year-on-year decrease of 5.51%; achieved net profit of 0.363 billion yuan, a year-on-year decrease of 20.99%; and realized net profit deducted from non-mother of 0.344 billion yuan, a year-on-year decrease of 23.26%. In the second quarter of 2024, the company achieved operating income of 0.771 billion yuan, a year-on-year decrease of 10.46%; realized net profit of 0.259 billion yuan, a year-on-year decrease of 23.15%; and realized net profit deducted from non-mother 0.245 billion yuan, a year-on-year decrease of 26.28%.
Higher expenses are the main reason why profits are under pressure, but the rate of increase is slower than in Q1. The sum of sales, management, and R&D expenses increased 7.0% year over year in the first half of 2024, but the Q2 growth rate was only 1.7%.
1) The company concentrated resources to invest in the field of artificial intelligence models, especially in the fields of introducing professional talents and building computing power resources. The R&D cost rate increased to 42.6%, an increase of 4.31 pct over the previous year. 2) The company increased sales promotion efforts, and the sales expense ratio increased to 17.44%, an increase of 2.29 pct over the previous year. 3) The company's financial expenses increased by 0.033 billion yuan over the same period last year, mainly due to the company's increase in investment.
The revenue growth rate reflects the company's core business alpha, and the contract debt +10% provided a good basis for revenue recognition in the second half of the year. The average daily turnover of A-shares in Q1 and Q2 in 2024 was +2%/-17%, respectively, and the company's revenue in a single quarter was +1.5%/-10.5%, respectively. The C-side business showed the resilience of the company's weak market environment with investors as the main demand. At the same time, in the first half of the year, the company received -7% of cash from the sale of goods and services, and the contract debt was +10% compared to the same period, providing a certain advance payment basis for revenue recognition from the corresponding business in the second half of the year.
By business, the advertising and internet promotion business bucked the trend. 1) The company's value-added telecommunications business revenue in the first half of 2024 was 0.77 billion yuan, down 11.0% year on year, mainly due to the average daily turnover of A-shares -8% year-on-year in the first half of the year, due to the decline in investors' demand for financial information services. 2) The advertising and internet promotion business revenue was 0.35 billion yuan, up 9.5% year on year. The company made full use of new media channels for brand promotion during the reporting period, empowering accurate marketing with artificial intelligence, big data and other technologies to achieve a rebound in advertising business. 3) Fund sales service revenue was 0.17 billion yuan, down 4.9% year on year. Based on the company's gradual strengthening of the Internet smart financial management platform, the number of products launched on the iFund platform was +14% to 21,373 compared to the same period last year. 4) Revenue from the software sales and maintenance business was 0.1 billion yuan, down 7.2% year on year, mainly affected by the reduction in IT expenses of downstream brokerage customers.
Continue to increase artificial intelligence, accelerate the deep integration of artificial intelligence product business with large models, and make every effort to cultivate new growth poles of “AI+ Finance”. As of June 30, 2024, the company has obtained a total of 510 independently developed software copyrights, 103 invention patents (including 20 US patents), and published dozens of papers at top international AI academic conferences such as AAAI and ICASSP. The company has 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, big model+office assistant, big model+translation, etc., which is expected to accelerate the opening up of “AI+ finance” broad growth space.
Investment suggestions: Expected 2024-2026E with operating income of 3521.11 million yuan, 3969.31 million yuan, 4977.72 million yuan, -1.2%, 12.7%, and 25.4%, respectively; realized net profit to mother of 1305.51 million yuan, 1445.81 million yuan, 1771.45 million yuan, -6.9%/10.7%/22.5%, respectively; according to the 2024/8/23 closing price, the corresponding company's PE valuation is about 39.49x/6666x/ 29.10x, maintaining a “buy” rating.
Risk warning: (1) The uncertainty of the global economic environment and challenges in the structural transformation of the domestic economy may slow down the economic growth rate. In this context, the liquidity of the A-share market, as an important barometer of the domestic economy, may be significantly affected. (2) Large-scale net redemptions of public funds will lead to a reduction in Tiantian Fund's revenue such as sales commissions, which in turn will challenge its overall profitability. (3) With the continuous tightening of financial supervision policies and the increasing standardization of the fund sales market, the fund sales side is undergoing profound changes. These policy changes may include adjustments to sales commissions, integration of sales channels, and strengthening of investor protection mechanisms. These changes will have a profound impact on fund companies' profit models. (4) Due to limitations in technology maturity, application scenarios, and investor acceptance, the transformation effect of AI technology fell short of expectations, and the user experience declined.