Incidents:

On August 24, 2024, the company announced its 2024 semi-annual report. 2024H1, the company's revenue was 1.389 billion yuan, -5.51% year on year; net profit to mother was 0.363 billion yuan, -20.99% year on year; net profit not attributable to mother was 0.344 billion yuan, -23.26% year on year;

2024Q2, the company's revenue was 0.771 billion yuan, -10.46%; net profit to mother was 0.259 billion yuan, -23.15% YoY; net profit not attributable to mother was 0.245 billion yuan, -26.28% YoY.

Investment highlights:

Due to multiple influences such as the capital market, the company's various businesses were briefly pressured by 2024H1. The company's value-added telecommunications business/software sales and maintenance/advertising and internet promotion services/fund sales and other business revenues were 7.69/0.103/0.35/0.168 billion yuan, respectively, -10.96%/-7.19%/+9.45%/-4.91% compared with the same period last year;

1) At the individual business level: We believe that the company is mainly affected by capital market fluctuations and the average daily turnover of A-shares (2024H1 -9.33% year-on-year); as of June 30, 2024, the total number of registered users of Tonghuashun Financial Service Network was about 0.625 billion (0.623 billion at the end of 2023); the average number of people using the Tonghua Shun Online Market free client every day was about 14.39 million (14.47 million at the end of 2023) People), the number of weekly active users is approximately 19.21 million (19.36 million at the end of 2023). 2) Institutional customer level: We believe that the IT expenses of downstream customers have been affected for a short time; currently, the company's products and services have covered more than 90% of domestic securities companies, as well as a large number of institutional customers such as public & private equity funds, banks, insurance, etc.

Increased investment in sales promotion and R&D, and the increase in contract liabilities showed operational resilience. 2024H1's sales/management/R&D expenses ratio was 17.44%/8.23%/42.62%, +2.29/+1.36/+4.31pct compared to the previous year. In order to expand its market share and increase sales promotion efforts, the sales expense ratio has increased; the main reason for the increase in management expenses is +27.69% compared to salary and additional expenses; in terms of research and development, the company concentrated resources to invest in the field of artificial intelligence models, especially in areas such as introducing professionals and building computing power resources.

2024H1's contract debt was 1.202 billion yuan, +9.67% year over year; we believe that the increase in contract debt shows the resilience of the company's operations to a certain extent and is expected to provide firm support for the company's subsequent revenue growth.

Continuing to strengthen AI technology research and development and accelerate the integration of existing artificial intelligence products with large models 2024H1, the company continues to strengthen artificial intelligence technology research and development, and has achieved a series of results in technical fields such as big models, intelligent speech, natural language processing, machine translation, graphic images, and intelligent body construction. The company has applied generative artificial intelligence technology in financial information, financial Q&A, investment research, code generation, customer service, marketing and promotion, office management, etc., to strengthen internal business linkages and improve service capabilities and service efficiency.

On January 12, 2024, the company officially released the HiThinkGPT big model for financial questions. It is the first major financial dialogue model in the industry to be registered through the Internet Information Office. Currently, the company will accelerate the deep integration of existing artificial intelligence product business with big models. It 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, and big model+translation. At the same time, it is also possible to design customized solutions according to the individual needs of customers and export customized products with large models as components to meet the intelligent transformation and upgrading needs of customers in different industries.

Profit forecast and investment rating: The company has a large user base on the C side, and the B side has achieved comprehensive coverage of various types of institutions. Under the power of large models, product monetization capacity is expected to be further improved, and performance continues to grow. We expect that in 2024-2026, the company will achieve revenue of 3.674/4.054/4.508 billion yuan, net profit to mother of 1.353/1.539/1.759 billion yuan, EPS is 2.52/2.86/3.27 yuan/share respectively, and PE corresponding to the current stock price is 38/34/30X, respectively, maintaining a “buy” rating.

Risk warning: Risk of capital market downturn; C-side user monetization falls short of expectations; large-scale model iterations fall short of expectations; operational and regulatory risks and industry competition with Flush App increase risk.