Through mergers and acquisitions, transformation and upgrading, it has both traffic entry and traffic operation capabilities. The company was formerly known as Henan Cisco Co., Ltd. Its main business was the manufacture and sale of instrument products. It was listed on the main board in 1996. After listing, the instrument industry gradually entered a downward cycle after a mature period. The company completed transformation through acquisitions in 2016, mainly focusing on the two major business segments of Internet media and digital marketing. Currently, it covers more than 6 million monthly active users overseas through self-developed PC and mobile applications, and is a platinum service provider for its advertising ecosystem.
Digital marketing: The differentiated strategic layout of Whale Hung Kinetic Advertising is expected to fully benefit from the structured traffic dividends brought about by the launch of Huawei terminals. Unlike mainstream marketing companies, the company's strategy focuses on the Huawei Whale Hong Kinetic Energy advertising system, and is the exclusive advertising agency for the four major industries of gaming, social networking, tools, and travel in its ecosystem. According to the company announcement, as of the first three quarters of 2023, the company's revenue from Whale Hung Kinetic Energy reached 845 million yuan, accounting for 40.16% of total operating income. However, the Huawei Whale Hung Kinetic Energy advertisement relies on Huawei's “1+8+N” terminal strategy. Currently, the number of active monthly users of the Huawei Hongmeng terminal has exceeded 700 million, and thanks to the sales volume of the Huawei Mate 60, car machines, etc. that have exceeded expectations, there is still great potential for growth in the number of users, which in turn enhances the appeal of Whale Hung Kinetic to advertisers. Zhidu Co., Ltd. took the lead in the strategic layout of the Huawei system, which is expected to fully benefit from this round of structured traffic dividends, thus driving a rapid rebound in performance.
Internet media: covering more than 6 million MAUs in total, using AIGC to enhance user appeal. The business provides a variety of application products overseas. Influential products include the self-developed browser Wave Browser, Chrome plug-ins, and mobile applications such as weather, entertainment, news, file scanning, flight tracking, etc. Many apps rank highest in the same category in the Google Play Store and App Store app stores, and have maintained the top ten for a long time. Currently, it covers a total of more than 6 million monthly active users. Thanks to high-quality product capabilities and a considerable number of users, the company's Internet media business continues to be stable and has a high gross profit margin, so it is a solid business base for the company. Under the AIGC wave, the company is actively using AI capabilities such as ChatGPT to iteratively upgrade products to enhance the interactive experience, which is expected to further enhance user appeal.
Investment suggestions: In the context of the gradual resumption of advertising, on the one hand, the company is expected to benefit from the structured traffic dividends brought about by the launch of Huawei terminals, and on the other hand, it will use AIGC to enhance the user experience of Internet media products, thereby improving commercialization capabilities. Therefore, we believe that the company is expected to usher in an inflection point in operations and achieve rapid performance growth. It is expected that the net profit from net sales will be 263/327/485 million yuan in 2023-2025, corresponding to EPS of 0.21/0.26/0.38 yuan. The company has a high performance growth rate, and is a scarce listing target in Huawei's marketing industry chain. It has a certain valuation premium, 50 times PE in 2023, and a target price of 10.30 yuan corresponding to 6 months, covering the first time, a “buy-A” rating.
Risk warning: The macroeconomic recovery process fell short of expectations, the competitive landscape on the media side worsened, and competition in the media agency industry intensified.