It continues to benefit from economic recovery and AI commercialization, maintaining “buy” rating companies as important players in the domestic smart retail SaaS industry, and benefiting from the gradual recovery of the economy. 23H1's revenue was 1,210 million yuan, up 34.5% year on year, gross profit was 816 million yuan, up 36.6% year on year, and net loss was 470 million yuan (loss of 659 million yuan in the same period last year). We believe the company is expected to continue to benefit from economic recovery and commercialization of AI technology. The estimated revenue for 23-25E is $2,402/30.38/$3.643 billion, and net profit of -$619/-1.66/ $222 million. Referring to the comparable company 24E 3.7xPS (Wind), it is given 24E3.7xPS, corresponding to HK$4.44 per share (previous value of HK$4.84 per share), maintaining a “buy” rating.

Subscription business: deepening the growth of big customers, smart retail is growing strongly

In the first half of 2023, Weimeng's subscription solution revenue was 705 million yuan, up 21.4% year on year; the number of paying merchants was 100,092, down 3.4% year on year, mainly due to the deferred effect of the previous year; subscription business ARPU reached 7,047 yuan, up 26% year on year. Among them, the smart retail business developed rapidly. In the first half of 2023, smart retail revenue was 312 million yuan, an increase of 32%. Among smart retail customers, there were 1,223 brand merchants, and the average order revenue per user of brand merchants was 224,000 yuan.

Under the company's strategy of continuing to cultivate leading customers, the ARPU value of the company's subscription business continues to increase. We believe that the subscription business can continue to benefit from the release of demand from major customers and smart retail businesses.

Merchant Solution: The number of 23H1 paying merchants increased dramatically, and advertising demand recovered strongly, 23H1 Weimeng merchant solution revenue of 504 million yuan, up 58.3% year on year. The gross revenue of merchant solutions (equal to the average cost per merchant multiplied by the number of paying merchants) was 6.988 billion yuan, up 66.1% year on year. Mainly due to a significant increase in the number of paying merchants, the number of paying merchants increased from 26,770 as of June 30, 2022 to 40,494 as of June 30, 2023. In the first half of 2023, along with economic recovery and increased consumption recovery, advertising demand recovered strongly, and video advertising also showed a growing trend. As the economy gradually recovers, merchant solutions revenue is expected to continue to grow.

Weimeng WAI released, AI commercialization can be expected

In May 2023, Weimeng WAI, an AI application product, was officially released and has now been iterated to version 2.0.

Weimeng Group's SaaS products and services, including WeChat Mall, Enterprise Assistant, and OneCRM, have all been connected to Weimeng WAI to help merchants use the Weimeng system to carry out full-link business scenarios such as intelligent construction, intelligent marketing, and intelligent management. By the end of 23H1, the Weimeng Cloud Platform had developed and released 39 new cloud market applications and services, and added 9 high-quality ecosystem partners. A total of 476 applications and services, 760 games, and 1,165 templates and components had been launched. Up to now, the company has helped merchants such as Hongdou Home, Metz Bonway, and Tep to reduce costs and increase efficiency in intelligent marketing scenarios. We believe that the company's AI commercialization is expected to continue to be implemented.

Risk warning: Market competition intensifies; ARPU increases slower than expected.