Revenue has been growing steadily, and profits have declined somewhat. The company released 24H1 financial report, and 1H24 achieved revenue of 0.716 billion yuan (yoy +5.7%) and net profit to mother of 0.008 billion yuan (yoy -72.8%).

The “What's Worth Buying” community stimulates user activity and continues to promote AIGC research and development. “What is worth buying” monthly active users of 1H24 yoy +1.62% to 37.79 million; the GMV generated by the 1H24 community was 9.181 billion yuan, yoy -16.1%. The company reconstructs products through AIGC technology and is interested in constructing content logic: 1) Core product upgrades:

The “What's Worth Buying” app was transformed and upgraded to “What's Native to AI Is Worth Buying GEN2”, making it a consumer content platform that uses AI technology to collect, analyze, refine, and recommend consumer content across the network to better serve current users' decision-making needs for efficient acquisition of interesting content. 2) For C-side consumers: The AI Agent shopping assistant “small value” was launched to help users efficiently filter products and content in a conversational manner. 3) For creators: Launch the “ZDM-CoPilot Assisted Creation Tool” to enhance the creative experience and quality of creation. 4) Cooperative Big Model Companies: Cooperation was reached with companies such as Dark Side of the Moon, iFLYTEK, and MiniMax.

Innovative businesses continue to break through. 1H24's innovative business has achieved positive development results. Specifically, the company switched its business focus to Douyin, serving a number of international beauty and personal care brands, including P&G, Helena, TAKAMI, etc.; brand marketing revenue yoy +0.7%, creating high-quality marketing solutions for Xiaomi Youpin, Stone, Philips and other brand customers; product and media matching business. Xingluo Innovation was selected by Ali Mama Taobao League for “No. 1 Super U Selection Team Leader” and JD Alliance “Jingwu League Member” certification .

Overseas business launched. “What's worth buying” Thai app products can already be searched and downloaded in the local App Store, Google Play, and the Huawei App Market. By drawing on the domestic first-mover advantage and successful experience, replicating the proven “worth buying” model in the domestic market to emerging markets is expected to open up new growth space for the company.

The gross margin is affected by changes in the revenue structure, and the expense ratio is gradually optimized. We estimate that due to the faster growth rate of innovative businesses with lower gross margins, 1H24 gross margin fell 2.2 pct to 47.0% year over year, and gross margins of proxy operations, product sales, and brand marketing businesses all improved year over year. Year-on-year improvement in sales and management expense ratios: The sales/R&D/management rates for 1H24 were 18.2%/12.6%/12.6%, respectively, and the year-on-year change was -1.2/+1.3/-0.2pct. The company's net profit of 1H24 after deducting non-return to mother was 0.012 billion yuan, a year-on-year decrease of 39.1%, and the profit margin was 1.7%.

According to the latest financial report, we forecast the company's net profit of 0.08/0.14/0.17 billion yuan for 24-26 (originally forecast net profit of 0.23/0.28 billion yuan for 24-25 years). Using the PE valuation method, we refer to the comparable company's 25-year 25xPE (adjusted average), corresponding to a target price of 17.75 yuan/share, and maintain a “buy” rating.

Risks suggest that competition in the industry is intensifying, traffic growth is slowing down, and AIGC's progress falls short of expectations and has an impact on the company's valuation