Description of the event
Tonghuashun released its 2024 mid-year report. During the reporting period, it achieved operating income of 1.39 billion yuan, -5.5% year over year, and realized net profit to mother of 0.36 billion yuan, or -21.0% year on year.
Incident comments
The company operated steadily in the first half of the year, and the upward cost side weakened profitability. 1) In the first half of 2024, Tonghuashun achieved operating income of 1.39 billion yuan, -5.5% year-on-year, and realized net profit of 0.36 billion yuan, -21.0% year-on-year. The company's overall operation was steady, and net profit declined somewhat due to increased sales expenses and R&D expenses; 2) Profitability weakened. In the first half of the year, Tonghuashun ROE (weighted), gross profit margin, and net margin were 5.3%, 84.9%, and 26.1%, respectively, -1.5pct, -1.2pct, and -5.1pct; 3 points) Looking at the business line, value-added telecom services, advertising services, software sales and maintenance, fund sales, and others achieved revenue of 7.69, 0.35, 0.103, and 0.168 billion yuan respectively, which was -11.0%, +9.4%, -7.2%, and -4.9% year-on-year respectively.
Value-added telecom revenue is under cyclical pressure, and its core strengths remain stable. In the first half of 2024, the number of users in the company remained stable. The average daily activity and weekly activity were 14.39 and 19.21 million people, -2.0% and -1.8%, respectively. Affected by the equity market shocks, market enthusiasm for trading declined in the first half of the year, and demand for data financial information tools declined, putting pressure on the company's value-added telecommunications business.
The average daily transaction volume in the 2024H market was 862.7 billion yuan, -8.5% year-on-year, and the company's value-added telecom revenue was -11% to 0.77 billion yuan. We believe that as a leading Internet finance platform, the core value of TonghuShun lies in the platform, brand, and users. Despite cyclical pressure on value-added telecom business revenue, the company's core advantage remains stable.
Software and fund sales revenue declines as the market declines, and medium- to long-term prosperity is expected to pick up. 1) In the first half of 2024, the company's software sales and maintenance revenue was -7.2% to 0.103 billion yuan. It is expected to be mainly affected by factors such as lengthening repayment cycles and shrinking demand from downstream brokerage customers. However, the demand for medium- to long-term brokerage credit innovation and IT investment is expected to continue; 2) The company's fund sales revenue in the first half of the year was -4.9% to 0.168 billion yuan, which is expected to be mainly affected by factors such as the cooling of the new development fund market and fee cuts for equity products.
With strong sales promotion and AI model research and development, sales and R&D cost rates have increased. In the first half of 2024, the company's sales, management, and R&D expenses were 0.24, 0.11, and 0.59 billion yuan, respectively, +8.8%, +13.3%, and +5.1%, respectively. The corresponding cost rates were 17.4%, 8.2%, and 42.6%, respectively, +2.3, +1.3, and +4.3pct. In the first half of the year, the company increased sales and advertising efforts, which led to a slight increase in the sales expense ratio; the high rise in R&D expenses was due to the company's concentrated resources and investment in the AI model field, especially in the field of large AI models Investment in fields such as the introduction of professional talents and the construction of computing power resources.
In the first half of the year, the company's main business was under cyclical pressure, and the high rise in R&D expenses dragged down profit performance. However, as a leading Internet financial platform, the company's core advantage is still stable, and it is recommended that the layout revolves around the company's strong beta attributes. Looking at the medium to long term, the company's forward-looking layout of the artificial intelligence circuit, and the successful implementation of AI models and intelligent investment applications is expected to help Tongflush open up new growth space. The company's net profit for 2024-2025 is estimated to be 1.16 billion yuan and 1.27 billion yuan, respectively, and the corresponding PE is 44.3 and 40.4 times, respectively, maintaining the purchase rating.
Risk warning
1. The turnover of the two markets fell sharply;
2. Regulatory policies have been tightened.