Core views

In the first half of 2024, Shangtang achieved revenue of 1.74 billion yuan, a year-on-year increase of 21.39%, and achieved gross profit of 0.767 billion yuan, corresponding to a gross profit margin of 44.07%, a slight year-on-year decline. It achieved a non-IFRS net loss of 2.326 billion yuan, and a corresponding loss rate of 134%, which narrowed sharply from the previous year.

In the first half of the year, the company's generative AI revenue reached 1.051 billion yuan, up 256% year on year, accounting for 60% of the group's total revenue, becoming the group's dominant business; the smart car business revenue reached 0.168 billion yuan, up 100% year on year, accounting for 3.8 pct to 10% of the group's total revenue; the scale of the traditional AI business was drastically reduced, and revenue fell to 0.52 billion yuan in the first half of the year, down 51% year on year, accounting for 30% of total revenue. The company transitioned to generative AI The strategic goals of the upgrade have been achieved in stages.

occurrences

In the first half of 2024, Shangtang achieved revenue of 1.74 billion yuan, a year-on-year increase of 21.39%, and achieved gross profit of 0.767 billion yuan, corresponding to a gross profit margin of 44.07%, a slight year-on-year decline. It achieved a non-IFRS net loss of 2.326 billion yuan, and a corresponding loss rate of 134%, which narrowed sharply from the previous year.

Brief review

Generative AI is driving high revenue growth for the Group. In the first half of 2024, Shangtang achieved revenue of 1.74 billion yuan, up 21.39% year on year. Among them, generative AI revenue reached 1.051 billion yuan, up 256% year on year, accounting for 60% of the group's total revenue. It became the group's dominant business, benefiting from the strong demand for large models and intelligent calculation services in the Chinese market, the rapid increase in the “Japan-Japan New SenseNova” large model capabilities, and a rapid decline in inference costs. The number of model calls increased rapidly, driving Shang Tang's generative AI business revenue growth significantly. According to the market share report recently released by IDC, Shangtang's big model platform and application ranked second in the industry with a market share of 16%, and AIDC services ranked among the top three in the industry with a market share of 15.4%. In the first half of the year, the smart car business revenue reached 0.168 billion yuan, up 100% year on year, accounting for 3.8 pct to 10% of the Group's total revenue.

In the first half of the year, 0.705 million vehicles were added to mass production and delivery, participating in the overseas projects of many Chinese car companies, and its international influence is becoming more and more prominent; UniAd, an end-to-end autonomous driving solution, completed difficult actual vehicle tests, showing strong intelligent driving capabilities. The scale of the traditional AI business has been drastically reduced. Revenue in the first half of the year fell to 0.52 billion yuan, a year-on-year decrease of 51%, accounting for 30% of total revenue. The company's strategic goal of transforming and upgrading to generative AI has been achieved in stages.

The expense ratio improved significantly during the period, and the loss rate narrowed drastically. In the first half of 2024, the company achieved gross profit of 0.767 billion yuan, corresponding to a gross profit margin of 44.07%, which was basically the same as the previous year. In terms of expenses for the period, the company's total three expenses decreased slightly year on year in the first half of 2024, but the cost ratio dropped significantly. The company's R&D expenses rate/management fee rate/sales expenses ratio in the first half of the year were 109%/42%/19%, respectively, down 15.66 pct/13.33 pct/10.24 pct year on year. Benefiting from the significant optimization of the cost ratio during the period, the company's loss ratio narrowed significantly. In the first half of the year, the company achieved a net loss of 2.457 billion yuan to mother and achieved a non-IFRS net loss of 2.326 billion yuan, corresponding to a net loss rate of 134%, a year-on-year narrowing of 33.3 pcts, and profitability continued to improve.

Profit forecast and valuation: We expect Shangtang's revenue for 2024-2025 to be 4.496 billion yuan and 5.889 billion yuan, respectively, with year-on-year growth rates of 32% and 31%, with generative AI revenue of 237 billion yuan and 3,551 billion yuan respectively, traditional AI revenue of 1.563 billion yuan and 1,594 billion yuan respectively, and smart car business revenue of 0.744 billion yuan and 865 million yuan respectively. Maintain a “buy” rating and give a target price of HK$1.65, which is 9 times PS in 2025.

Risk warning: (1) Policy risk: China's policy environment may have a significant impact on Shangtang Technology. As the Chinese government tightens regulations on the AI industry, companies may face the risk of policy changes that could affect their business model and growth. (2) Competitive risk: The field of artificial intelligence is full of fierce competition. Shangtang Technology faces competition from other technology companies around the world, which could adversely affect its market share and profitability. (3) Technical risk: Shangtang Technology's technological development falls short of expectations. (4) Geopolitical risk: Geopolitical tension between China and other countries may have an impact on Shangtang Technology's business. This includes issues such as export controls and restrictions on international market access. (5) Financial risk: Shangtang Technology has cash flow and continued unprofitable risks. (6) Amortization risk of intangible assets, low expectations for repayment of accounts receivable.