Pay attention to the recovery in market sentiment and maintain a “buy” rating

Tonghuashun released its semi-annual report. In 2024, H1 achieved revenue of 1.389 billion yuan (yoy -5.51%), net profit to mother of 0.363 billion yuan (yoy -20.99%), and deducted non-net profit of 0.344 billion yuan (yoy -23.26%). Among them, Q2 achieved revenue of 0.771 billion yuan (yoy -10.46%, qoq +24.53%) and net profit of 0.259 billion yuan (yoy -23.15%, qoq +149.38%). Fluctuations in market sentiment dragged down the company's revenue year over year. As market sentiment picks up, I am optimistic that the company will achieve accelerated growth. We expect the company's 2024-2026 EPS to be 2.62, 3.00, and 3.58 yuan respectively (previous value 2024-2026 3.19, 3.92, 4.86 yuan). Comparatively, the company's 2024 Wind unanimously expected an average PE value of 47.4 times, giving the company 47.4 times PE in 2024, with a target price of 124.20 yuan, maintaining a “buy” rating.

The downturn in the 24Q2 market affected revenue. Contract liabilities increased steadily by 101 trillion yuan, a decrease of 7.8%, of which the 24Q2 transaction amount was 49 trillion yuan, a decrease of 14.9%. 24Q2 market sentiment declined further, which had a negative impact on the company's business. Looking at the cash flow from selling goods and providing services, the 24H1 company index was 1.572 billion yuan, -7.0% year over year, of which 24Q2 was 0.915 billion yuan, -3.3% year over year. The decline was less than the decline in market turnover. By the end of 24H1, the company's contract debt was 1.202 billion yuan, up 9.1% from the end of 23 and 7.7% from the end of 24Q1. We believe that the company's sales revenue has shown some resilience. Continued growth in contract debt lays a good foundation for subsequent revenue growth. As market sentiment gradually picks up, the company is expected to achieve accelerated revenue growth.

The user base is good, and the advertising and internet business continues to grow

The company has a good user base, covering more than 90% of domestic securities companies, with 19.21 million active users per week as of 24H1. By product, 24H1 value-added telecom business revenue was 0.769 billion yuan, -10.96% year-on-year, with a gross profit margin of 82.39%, or -1.49pct year-on-year. Software sales and maintenance revenue was 0.103 billion yuan, -7.19% YoY, gross profit margin 80.24%, -2.04pct YoY. Advertising and Internet business revenue was 0.35 billion yuan, +9.45% year over year, gross profit margin 91.37%, -0.80pct year over year. Revenue from fund sales and other operations was 0.168 billion yuan, -4.91% year over year, gross profit margin 85.41%, -2.15 pct year on year.

R&D investment has increased, and AI commercialization results can be expected

24H1's sales/management/ R&D expenses rate was 17.44%/8.23%/42.62%, +2.29pct/+1.36pct/+4.31pct. The company continues to increase investment in R&D, especially in fields such as introducing professional talents and building computing power resources. 24H1 has applied generative artificial intelligence technology in business processes such as financial information, financial Q&A, investment research, code generation, customer service, marketing and promotion, and office management. The company has a vertical financial information service scenario, a good user base, and rich AI technology accumulation. In the future, as the commercialization of AI+ products gradually accelerates, it is expected to provide impetus for performance growth.

Risk warning: Fluctuations in market transaction amounts; technology implementation results fall short of expectations.