Investment event: Caixun Co., Ltd. released the 2024Q3 performance report. During the reporting period, the company achieved operating income of 1.21 billion yuan, a year-on-year increase of 10.72%; realized net profit to mother of 0.195 billion yuan, a year-on-year decrease of 36.36%; and realized deducted non-net profit of 0.185 billion yuan, an increase of 1.04% over the previous year.

Q3 Results improved in a single quarter, and R&D investment continued to increase. Looking at the situation in a single quarter, the 24Q3 company achieved a total operating income of 0.429 billion yuan, a year-on-year increase of 19.26%; realized net profit to mother of 0.077 billion yuan, an increase of 37.65% over the previous year; and realized deducted non-net profit of 0.062 billion yuan, a year-on-year decrease of 8.39%, an improvement over Q2. The profit and loss from changes in fair value decreased by 106.27% compared to the previous period, mainly due to the loss of fair value changes in the current period of aerospace software invested by the company's Henan Lantian Xinchuang Industrial Investment Fund. The company increased its investment in AI and other business fields. In the first three quarters, it invested 0.237 billion yuan in R&D expenses, an increase of 28.94% over the previous year.

C-side AI application products continue to be iterated, and innovative products such as Cailing enable new 5G call scenarios. In October 2024, CaiXun released the AI application “Color Ling” for Tucson Music. The product is built on next-generation multi-modal large model technology. By integrating technologies such as Fourier transform, emotional computation and emotional design, text analysis and generation, and cutting-edge AI algorithms, it can complete the creative process of image-generated music. In addition, the company launched AIGC products for C-end consumer users, such as 3D digital generation, Tusheng Music Color, AI Smart Dance, and AI Caller Secretary, and has comprehensively created all-scenario smart applications throughout the “5G New Call”.

Deeply integrated into the Harmony ecosystem and built a computing power platform backed by the operator ecosystem. In terms of building the Harmony ecosystem, as an ISV partner of Huawei, the company launched the mobile phone business office Hongmeng App project developed in cooperation with operators in early 2024, and has now launched the Huawei App Store. In terms of the computing power ecosystem, the company released the AI-native cloud computing solution Rich AICloud. Its architecture is divided into three layers: the bottom layer is the RichMoss platform, which can manage 10,000 card clusters, and the top layer is the RichBoost high-performance large model training platform, which is an integrated solution covering everything from computing power construction to large model operation. At present, more than 0.01 million cards have been delivered, and there are more than 3 kilocal clusters, reducing network equipment costs by 25%.

Investment suggestion: Caixun Co., Ltd. is deeply integrated into Hongmeng and the operator ecosystem to build a full-stack solution from lower-level computing power to higher-level AI applications. Its innovative C-side products such as Cailing are forward-looking in the industry, can simultaneously launch new call scenarios and directly target C-end consumers, and have a wide range of commercial application space. Considering factors such as changes in the macroeconomic situation, we expect the company to achieve revenue of 1.706/2/2.428 billion yuan in 24/25/26 (previous value of 1.732/2.031/2.466 billion yuan), an increase of 14%/17%/21% year-on-year; considering that the company is in a period of large-scale investment in AI technology, the cost rate is expected to continue to decline in the future, and the company is expected to achieve net profit of 0.301/0.415/0.523 billion yuan in 24/25/26 (previous value 0.321/ 0.417/0.514 billion yuan), a year-on-year increase of -7%/38%/26%. Considering the high quality of the track where the company is located and the related technology and business layout have high growth potential, we give the company a “buy” rating.

Risk warning: risk of AI progress falling short of expectations, risk of changes in industry policies, risk of macroeconomic fluctuations, risk of untimely information updates