Core views

Quzhi Group is a leading AI interactive marketing service provider in China. The company specializes in product marketing and incubation services for B-side FMCG brands. The company's growth is driven by innovation and technology. It independently develops an AIoT marketing platform supporting software and hardware. It provides platform-based services for traditional fragmented “distribution → feedback” demand scenarios, and also operates and transforms C-side customers. The barriers come from technical understanding, algorithm technology, software and hardware research and development, and online and offline scenario data and brand accumulation. By the end of 2023, 7,500+ machines had been installed, with a cumulative total of 5,000 w+ registered users; revenue in 2023 exceeded 1 billion yuan, and adjusted net profit was 0.2 billion yuan.

The original AI interactive marketing service generated a single revenue of 0.14 billion yuan (yoy +157%) in 2023, and the gross margin of the business reached 85%. The AIoT smart terminal developed by the company has built-in functional components such as AI industrial control hosts, visual interactive cameras, and voice interactive modules. It designs personalized interactive marketing plans for brands according to business scenario requirements, extends the service value chain, and has broad market space as an innovative service. Because AI interactive marketing services are based on the company's self-developed terminals and have certain technical barriers, the company maintains a leading position in the segmented circuit.

There are 7,500+ offline terminals, covering 22 cities, with more than 50 million registered users; core cities continue to infiltrate encryption; the entry mode shifts from rental to cooperation. The company chose areas where young users are concentrated, such as office buildings and long-term rental apartments in high-tier cities, to launch terminals in the form of site leasing. In 2021, the company rapidly expanded its terminal network, optimized and adjusted during the 2022 pandemic. At the end of 2023, 7,500 terminals were deployed, with more than 50 million registered users.

With the introduction of various policies to encourage offline consumption, it is expected that the form of cooperation between companies and venues will shift from rent to factor cooperation in the future.

The market space comes from the total marketing budget of FMCG products. The company creates differentiated services in response to the rigid needs of mature brands and emerging brand companies for new product incubation. Compared with outdoor media such as TiMedia, the company provides distribution services for brands while marketing products, and provides offline effect testing tools for incubated products to achieve integrated quality and efficiency; compared with online marketing platforms, the company's offline network has a near-field advantage, which meets immediate needs in the product incubation process. As a unique form of FMCG marketing, the company continues to expand from the “small but beautiful” of small to medium brands to the FMCG industry. Zhanquan The share of the marketing budget of the brand in the market.

Profits are growing rapidly, and overseas expansion is planned. The company has achieved stable profits. In 2023, the company recorded a cash flow of 0.21 billion yuan, adjusted net profit of 0.2 billion yuan, and adjusted net profit margins of 10%/14%/20% for three consecutive years; according to the company's 2024 interim report, the company plans to start international business in the Middle East in 2024. The space for overseas expansion comes from (1) the Middle East market is vast, and the marketing industry needs high-quality digital development; (2) under the trend of domestic brands going overseas, the company's AIoT terminals can simultaneously provide marketing and retail channels.

Profit forecast and valuation: The company's total revenue for 2024/2025/2026 is expected to be 1.38/1.78/2.21 billion yuan respectively, corresponding growth rate of 37%/29%/24%; the company's net profit for 2024/2025/2026 is estimated to be 0.2/0.25/0.3 billion yuan (yoy +52%/27%/19%), Quzhi Group 2023-2026 adjusted net profit CAGR 27%, corresponding to PEG 0.99x, which is higher than the industry average, but Due to the scarcity of the target and the low distribution ratio, there is a certain valuation premium. Covered for the first time and given an “gain” rating.