Hanwang Technology released its three-quarter report. In Q1-Q3 of 2024, it achieved revenue of 1.147 billion yuan (yoy +17.87%), net profit to mother of -75.0138 million yuan (same period last year - 8985.28), and deducted non-net profit of -82.0024 million yuan (same period last year - 8919.36). Among them, Q3 achieved revenue of 0.432 billion yuan (yoy +22.84%, qoq +15.13%) and net profit to mother of -24.2111 million yuan (same period last year -3799.45). The company's revenue growth rate in the first three quarters was yoy+12.83 pct, and the loss level continued to narrow, mainly due to a year-on-year increase of more than 20% and 70% in the digital painting and electronic paper business. We believe that AI technology has entered a singular moment of rapid transformation from technology to revenue. As new technology development is completed and AI-driven revenue increases, we are optimistic about the company's 25-year revenue growth and profit recovery. Keep buying.

Improved gross margin, excellent sales/management/R&D expense ratio control

The company's overall gross margin for the first three quarters of 24 years was 42.23%, a year-on-year change of +0.69pct. The sales/management/R&D expense ratio was 27.59%/7.31%/15.89%, -1.17pct/-2.52pct/-1.06pct year-on-year. Net operating cash flow was -0.1 billion yuan compared to -0.15 billion yuan in the same period last year. We believe that while the company continues to increase investment in original core technology, AI models, product innovation, etc., it has increased the company's overall gross profit margin through efficient management, effectively controlled the three rates, and is optimistic about subsequent profit recovery.

Continued expansion of categories. The recovery in overseas markets led to the release of painting products in August. The company released the new Hanwang handwritten electronic paper N10 Pro. On the basis of an 8-core processor, the next-generation NPU with 6TOPS computing power was upgraded to achieve hundreds of millions of operations per second, specifically supporting the high-speed operation of various AI algorithms. Furthermore, due to factors such as the recovery of the overseas digital painting market and the launch of new painting tablet products, the digital painting business revenue increased by more than 20% over the same period last year. We believe that by continuing to expand its product matrix, the company can better seize rapid changes in demand in domestic and foreign markets, which is conducive to steady revenue growth.

At the moment of the singularity of AI, the transformation from technology to revenue accelerated significantly

In the first three quarters, the company's AI terminal e-paper products upgraded hardware technology and optimized software functions such as localized voice recognition, AI text processing, and handwritten notes, driving sales of e-paper-related businesses to increase by more than 90% year on year, revenue increase by more than 70% year on year, and further increase in market share. Take the N10 Pro as an example. The built-in Han Wang Tiandi large model AI can realize functions such as intelligent scheduling of meeting minutes, content creation, and simultaneous translation, greatly improving user efficiency. We believe AI has reached a singular point where technology is beginning to accelerate its transformation to revenue.

Profit forecasting and valuation

We expect the company's 2024-2026 EPS to be 0.23, 0.35, and 0.50 yuan respectively. Comparatively, the company's 25-year iFind unanimously expected an average PE value of 97.1 times, giving the company 97.1 times PE in 25 years, with a target price of 33.99 yuan (previous value 22.71 yuan), maintaining a “buy” rating.

Risk warning: Downstream demand falls short of expectations, and commercialization progress falls short of expectations.