Matters:

On August 24, Dreamnet Technology released the 2023 semi-annual report. The company achieved operating income of 2,364 million yuan in the first half of the year, an increase of 42.27% over the previous year; net profit for the return was 40.2063 million yuan, an increase of 758.36% over the previous year.

Commentary:

Performance continued to improve in the first half of the year, and the share of new businesses such as 5G rich media messaging increased steadily. In the first half of the year, the company achieved a simultaneous increase in sales revenue and business scale. Among them, the basic market for cloud SMS business was stable, and new momentum such as 5G rich media messaging and international cloud communications grew. The company achieved revenue of 2,364 million yuan in the first half of the year, an increase of 42.27% over the previous year. Among them, 5G rich media messaging business revenue increased 155.81% year on year and business volume increased 136% year on year; international cloud communications business revenue increased 324.98% year on year, and business volume increased 274% year on year.

The company's net profit for the first half of the year was 40.2063 million yuan, an increase of 758.36% over the previous year. The revenue and profit share of new businesses such as 5G rich media messaging in the company has steadily increased, and it has become the main engine for the company's performance growth.

Operators are promoting a further increase in the certainty of credit reading, and the recognition of downstream B-end customers is gradually showing. As a 5G messaging service provider with independent core technology, the company is expected to benefit from the core benefits. On August 17, 2023, China Mobile issued a 5G credit reading terminal analysis and recruitment announcement, marking that the world's largest operator has officially launched the commercial process for credit reading products, further improving certainty. Recently, B-side customers, including Guangfa Bank and Bank of Gansu, have begun purchasing 5G message parsing capability services. The commercial value of 5G credit reading is gradually being recognized by high-value B-side customers, and 5G credit analysis services are expected to start rapidly. The company has been working on 5G rich media messaging for many years, and has formed exploration and layout with many upstream and downstream enterprises. It is also the only enterprise in the market that also provides credit analysis services to all three major operators. It has successfully won the bid for the China Mobile project “SMS Mini Program 2.0”, the China Telecom project “5G Message Fall Solution”, the China Unicom project “Intelligent Technology Service”, and signed a “Product Cooperation Agreement on SMS Mini Program 2.0 Terminal Analysis Service Capabilities” with China Mobile Internet Company in 2022. It has successfully entered the 5G credit reading ecosystem, and will benefit from the 5G credit reading business at the same time Commercial promotion and rapid start-up, and with a deep history of cooperation with China Mobile, the company is expected to participate in the 5G credit reading business ecosystem with more roles.

The company signed a Pangu model cooperation framework agreement with Huawei to actively create “AI+5G news”. HUAWEI CLOUD is the company's long-term partner. The company combines Huawei's Pangu model to create “AI+5G messaging”, further explores the potential of combining messaging service scenarios, and creates intelligent messaging service solutions for customers. When traditional messaging is upgraded to 5G messaging, the Pangu model can provide an efficient and low-cost solution for million-level template content generation and massive message content generation, realize automatic and intelligent generation of message content for thousands of people, thousands of faces, and thousands of traces of message content. At the same time, it also provides multi-modal content review capabilities to ensure information security and distribution timeliness, and help the company reduce service costs while improving personnel work efficiency.

Profit forecasts, valuations and investment ratings. Benefiting from the steady increase in the scale of basic business and the rapid development of innovative services such as 5G rich media messaging and international cloud communications, we expect the company's revenue from 2023 to 2025 to be 5.489, 6.775 and 7.772 billion yuan respectively, and net profit attributable to the parent company to be 2.15, 4.82 and 635 million yuan respectively, corresponding to EPS of 0.27, 0.59 and 0.78 yuan, maintaining the “strong promotion” rating.

Risk warning: Operators' SMS prices continue to rise. Poor management has led to continued calculation of goodwill and asset impairment preparations, and progress of new services such as 5G messaging has fallen short of expectations.