occurrences
Recently, the company released its annual report for 2023 and the first quarter report for '24. In 2023, the company achieved revenue of 4.915 billion yuan, up 3.78% year on year; net profit to mother was 1,258 billion yuan, up 9.15% year on year; net profit after deducted to mother was 660 million yuan, down 42.86% year on year.
With 2024Q1, the company achieved revenue of 1,208 billion yuan, a year-on-year decrease of 0.79%, net profit to mother of 187 million yuan, and net profit not returned to mother after deducting net profit of 194 million yuan. In addition, the company announced a restricted stock incentive plan to grant 62.462 million restricted shares (about 5.14% of the total share capital) to 432 employees at a grant price of 19.63 yuan/share.
Key points of investment
Opera continued to grow strongly, and losses in the investment business disrupted 2024Q1 results. The steady increase in the company's revenue in 2023 was mainly due to the continuous advancement of the browser commercialization strategy and the continued expansion of the Opera Ads platform. In 2023, the revenue from the search business/advertising business reached 1,143 billion yuan/1,653 billion yuan respectively, up 21.22%/28.95% year-on-year respectively. Gross margin continued to be high in 2023, reaching 78.84%; in terms of expenses, the company firmly implemented the “All in AGI and AIGC” development strategy and increased R&D investment. R&D expenses increased to 968 million yuan, an increase of 40.16% over the previous year, and the R&D expenditure ratio reached 19.69%, an increase of 5.11 pcts over the previous year. In addition, the company's investment business performance in 2023 was excellent, with net investment income of 255 million yuan and net income from fair value changes of 1,283 million yuan, further enhancing the company's performance.
2024Q1 Opera maintained strong growth, and the domestic leisure and social networking business operated steadily. As the company continued to increase investment in AI R&D (R&D expenses reached 349 million yuan, an increase of 104.4% year on year), the core business remained resilient, but the investment business lost 129 million yuan in stages, putting pressure on short-term performance. Opera raised its 2024 performance guidelines, which is expected to contribute to a deterministic increase in performance.
Tiangong's big model was iterated to version 3.0, and the diverse AI product matrix played a combo punch.
The company successfully built a matrix of AI products such as AI big models, AI search, AI music, AI video, AI social networking, AI games, etc. 1) Big Model: On April 17, 2024, the Tiangong University model was iterated to version 3.0. “Tiangong 3.0” uses the 400 billion parameter MoE architecture. It is currently one of the open source MoE models with the largest model parameters and the strongest performance in the world, and many evaluation indicators have reached the leading global level; 2) AI search: With the iterative update of Tiangong University's model, Tiangong AI's intelligent assistant is comprehensive The upgrade added multiple capabilities such as multi-round search, tool call, chart drawing, and image modification to better meet user needs; 3) AI music:
Based on “Tiangong 3.0”, the company launched “Tiangong SkyMusic”, the first AI music SOTA model in China, which greatly lowered the threshold for users to create music. 4) AI game: The company's self-developed AI game “Club Koala” began testing the alpha version on April 18. In addition, the company is also actively developing AI video and AI social networking. The rapid iteration of the Tiangong University model has well consolidated the company's core competitive advantage in the AI field. In the future, it is expected to effectively empower the company to implement various AI applications and accelerate product monetization.
The equity incentive plan has been implemented to ensure the stability of the core talent team. The company issued a restricted stock incentive plan for 432 people, including core technical personnel. The performance assessment index is that the cumulative revenue for 2024/2024-2025/2024-2024-2024-2026 is not less than 5.5 billion yuan/11.5 billion yuan/18 billion yuan, respectively. The equity incentive plan will ensure the long-term stability of the R&D team, promote the improvement of the company's core technical advantages, and accelerate the iteration of large models and commercialization of diverse applications.
Investment advice:
We expect the company to achieve revenue of 5,534/62.58/ 7.223 billion yuan in 2024-2026, net profit to mother of 9.09/10.44/1.60 billion yuan, corresponding EPS of 0.75/0.86/1.04 yuan. According to the closing price on May 13, 2024, corresponding to 51/44/37 times PE, respectively, and maintain an “gain” rating.
Risk warning:
Large model iterations fall short of expectations; commercialization of AI products falls short of anticipated risks; market competition increases risks; and regulatory policies exceed expectations.