AI and overseas sales are still in the investment period. They are optimistic about the Gen-2 enabling business. Maintaining a “buy” rating of 2024H1, the company's revenue was 0.716 billion yuan, an increase of 5.69% over the previous year. Net profit to mother was 7.6579 million yuan, down 72.81% year on year, net profit after deduction was 11.9834 million yuan, down 39.07% year on year, gross margin was 46.97% (year on year -2.15 pct), period expense ratio was 43.16% (-0.19pct year on year), net margin was 1.07% (-3.09pct year on year). The decline in profitability was mainly due to the company's R&D expenses in AIGC and overseas business increasing by 13.9156 million yuan year on year, and The result of 2024Q1 investing 10 million yuan in charitable donations. Considering continued investment in AI and overseas business, we lowered our profit forecast for 2024-2026, predicting net profit to be 0.91/1.27/1.82 billion yuan (previous value was 1.21/1.52/1.87) billion yuan respectively, corresponding EPS was 0.46/0.64/0.92 yuan, and PE corresponding to the current stock price was 35.0/25.0/17.5 times, respectively, maintaining the “buy” rating.

The ecosystem of users and creators is active, and GMV continues to grow

Through rich operational activities and a good community ecosystem, the “what is worth buying” content ecosystem has become more active.

2024H1 published 15.4362 million articles of content, up 21.89% year over year, and user-contributed content (UGC) accounted for 54.77%. By the end of June 2024, the number of “what is worth buying” registered users reached 29.6445 million, an increase of 7.02% year over year; the number of mobile app activations was 74.9805 million, an increase of 11.56% year over year. The boom in the user ecosystem is driving GMV growth. In the first half of 2024, “What's Worth Buying” confirmed that GMV reached 9.181 billion, and the number of completed orders was 98.0511 million.

AIGC restructured its products, and “external cooperation+going overseas” opened up growth space. In May 2024, the company released a comprehensive AI strategy. (1) AI: Iterative upgrade model. Currently, the GEN2 version is in closed beta. AI continues to help content production. 2024H1 and AIGC content publication volume increased 46.03% year on year, accounting for 39.61% of content (+6.55pct year over year). The company continues to carry out external cooperation, launching “Kimi+ What's Worth Buying” in April 2024; “What's Worth Buying” landed on the Smart Spectrum Agent Store in June; in July, the Conch AI access is worth buying the “Consumer Model Enhancement Tool Set”, and it is expected that it will continue to build an AI ecosystem through cooperation in the future. (2) Going overseas: The “What is worth buying” Thai app products have landed in local App Stores and other app markets, replicating the successful domestic model to emerging markets, and is expected to launch in more Asian and European regions in the future.

Risk warning: the risk of e-commerce policy changes, innovative business development falling short of expectations, etc.