Incidents:

The company released its 2024 mid-year report. 2024H1 realized revenue of 1.427 billion yuan, an increase of 13.86%; realized net profit to mother was 0.102 billion yuan, an increase of 17.15%.

The revenue side is growing rapidly, and the cost control effect is remarkable. 2024H1 revenue also increased 13.86%. Among them, Internet media business revenue increased 17.14% and digital marketing revenue increased 12.53%. The comprehensive gross margin of 2024H1 was 17.69%, a year-on-year decrease of 4.65pct. The decline in gross margin was mainly due to increased resource investment in the Internet media business, which led to a decrease in the gross margin of this business. The 2024H1 sales expense ratio, management cost rate, and R&D expense ratio were 3.05%, 5.34%, and 4.00%, respectively, a decrease of 1.06 pct, 1.60 pct, and 0.75 pct, respectively. Thanks to revenue growth and cost control, the company achieved net profit attributable to mother of $0.102 billion, an increase of 17.15%.

Internet media: Promoting diversified strategies such as AI empowerment, mobile media is growing prominently. In 2024, the company launched Wave Pro, a browser with paid subscription features such as AI assistant and ad blocker, on the PC, and integrated ChatGPT into some mobile products to enhance user experience and enhance stickiness through AI. In addition, in 2024, the company launched AI computing, health and other apps one after another, further improving the app product line. Up to now, the company has more than 50 existing tool advertising monetization apps and customer paid subscription apps. Among them, weather and news apps have been ranked in the top ten in the same category in app stores for a long time.

Thanks to diversified strategies, the 2024H1 mobile business achieved revenue of 0.184 billion yuan, an increase of 80.38% over the previous year. The growth was particularly outstanding.

Digital marketing: Continuously tilt resources towards Whalehong Kinetic Energy to cover further expansion of the industry.

2024H1 continues to invest capital, manpower and other corporate resources into the advertising agency business of Jinghong Kinetic Energy, and the related business scale continues to grow rapidly. At the same time, in addition to its original core agency business, games, tools, social networking, and travel, it is expanding its business scale gradually. The digital marketing business achieved revenue of 0.87 billion yuan, an increase of 12.53% over the same period.

Investment advice: In the context of steady growth in the basic Internet media market, we are optimistic that the company's digital marketing business will benefit from the growth potential shown by the structural dividends of Huawei Whale Hong Kinetic Energy. We expect to achieve a net profit of 0.3/0.364/0.418 billion in 2024-2026, corresponding to EPS of 0.24/0.29/0.33 yuan. The company is a scarce listing target in Huawei's marketing industry chain. It was given 40 times PE in 2024, corresponding to a 6-month target price of 9.6 yuan, and given a “buy-A” rating.

Risk warning: The macroeconomic recovery process fell short of expectations, the competitive pattern on the media side deteriorated, and competition in the media agency industry intensified.