Event summary: On April 21, 2023, the company released its 2022 annual report. The company achieved operating income of 9.521 billion yuan in 2022, a decrease of 12.54% over the same period of the previous year; net profit attributable to shareholders of superior companies was -2204 million yuan, a decrease of 344.23% over the same period of the previous year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss - 1,864 million yuan, a decrease of 406.49% over the same period of the previous year. The company's revenue for the first quarter of 2023 was 1,966 million yuan, down 22.17% from the previous year; Guimu's net profit was 186 million yuan, down 183.99% from the previous year. Considering that orders were delayed and confirmed in 22Q1, the decline in the company's revenue in 23Q1 was distorted.

The product revenue structure was adjusted, and the safety business revenue performance was impressive. In 2022, the company's security and other businesses achieved revenue of 1,791 million yuan, an increase of 29.72% over the previous year, with a gross profit margin of 55.55%, and continued to grow rapidly. In terms of customer coverage, the company completed new contracts with nearly 2,000 customers; in terms of urban expansion, the company completed and received 3 orders from Suzhou, Qingdao and Hebi, won bids for several urban projects, and accumulated more than 50 effective business opportunities; in terms of digital anti-fraud services, the company's new anti-fraud + threat intelligence contracts increased 58% year-on-year in 2022. The company's Internet advertising and service business achieved revenue of 4.710 billion yuan, a year-on-year decrease of 25.32%, mainly due to factors such as policies and industry restructuring, increased advertising accuracy requirements, and a slowdown in advertisers' advertising demand. The gross margin of the company's advertising business reached 67.55%, which is basically the same as the previous period. The Internet value-added business achieved revenue of 1,082 million yuan, a year-on-year decrease of 2.03%. In 2022, the company insisted on following the path of self-research, exclusive agency, and intermodal transport integration, and actively laid out overseas markets to hedge against the impact of tightening game regulations. The company's smart hardware business achieved revenue of 1,888 million yuan, a year-on-year decrease of 8.50%. The company launched the offline exclusive brand “360 Dazzle”, which provides software and hardware solutions with perfect categories, uniform quality, and deep integration of 360 Vision Cloud SaaS services.

Search engine data creates a unique first-mover advantage, clarifying the “fly with two wings” strategy for big language model development. On the one hand, the company made full use of the company's resources to continuously iterate on its own large-scale model, and on the other hand, quickly commercialized and implemented the advantages of scenarios to occupy the minds of users and adhere to the “fly with both wings” strategy. The company makes full use of its advantages in data accumulation: 360 Search is the top 2 search engines in China. It has been crawled more than 1 billion times a day, has collected nearly 100 billion pages and nearly 20 billion indexes, and has accumulated leading domestic massive data scraping experience and a complete page quality optimization system. As a high-quality corpus that is more conducive to training, the company has 150,000 high-quality authoritative sites and 1.8 billion high-quality pages. In terms of self-built knowledge base, 360 Q&A and 360 encyclopedia provide nearly 600 million questions and answers and 20 million entries. In terms of classified data, the company has 600 million 360 articles, a 360 library of over 90 million selected abstracts, and a 360 question bank with 70 million topics and other data sets. The company has launched “360 Smart Brain”, a product matrix based on the self-developed generative general model 360GPT, which provides AI+ search and AI+ browser for the C side: by integrating generative AI technology into the “360 New Search” launched by integrating generative AI technology into the search engine, it will launch a “new browser” with AI assistant functions by integrating AI technology. The company officially launched the “360 Enterprise Security Cloud” product in March 2022, targeting an enterprise-level digital security and management SaaS package; the company's coverage rate in central ministries and departments is 90%, the coverage rate in central enterprises is 80%, the coverage rate of large financial institutions is 95%, and the coverage rate of operators is 100%.

Investment advice: As the only A-share company with a search engine data scenario, the company has a significant first-mover advantage in big model AI research and development. As the company's big model AI products continue to be launched, the company's net profit for 2023-2025 is estimated to be 501, 11.70, and 1,642 billion yuan. The corresponding PE is 236X, 101X and 72X respectively, maintaining a “recommended” rating.

Risk warning: industry competition intensifies; technological innovation risks; downstream prosperity falls short of expectations.