Core views
The company publishes its annual report for the year 23 and the quarterly report for '24. In 2023, the company achieved operating income of 4.915 billion yuan, +3.78% year on year; realized net profit of 1,258 billion yuan, +9.19% year on year; achieved revenue of 1,208 billion yuan, -0.80% year on year in 1Q24; realized net profit to mother of 187 million yuan, -188.38% year on year.
The AI business accelerates the layout and covers a wide range of scenarios. On the big model side, Tiangong's big model has been iterated to version 3.0, using the 400 billion parameter MoE hybrid expert model, and simultaneously selecting open source; the application side has covered the three major scenarios of search, music, and games, all with a major product layout.
summary
The company's self-developed Tiangong University model continues to iterate, and AI applications have been implemented in multiple scenarios:
1) Search: The first AI search product in China was launched in August 23. The latest version of the product added enhanced mode and research mode to support chart generation; 2) Music: SkyMusic, an AI music generation model, is currently the only publicly available AI music generation model in China, which supports the generation of 80 seconds of 44,100 Hz music; the overseas social networking product StarMaker launched an AI cover function and has entered the top of the download list several times.
3) Game: The self-developed simulation game “Club Koala” integrates AI+UGC and AI NPCs. The alpha version test has started, and the Discord community has more than 56,000 members.
Looking ahead to 24 years, the company is expected to continue to make efforts on the AI model and application side. While maintaining leading domestic technology, the company has great potential for commercial monetization. The company is expected to achieve operating income of 54.1, 59.4, and 6.46 billion yuan in 24-26, up 10.1%, 9.7%, and 8.9% year-on-year; net profit to mother of 9.3, 10.5, 1.15 billion yuan, -26.4%, 13.7%, and 9.2% year-on-year; and PE corresponding to market value on May 13 is 49.9x, 43.9x, and 40.2x.
occurrences
The company released its 2023 annual report. In 2023, the company achieved operating income of 4.915 billion yuan, +3.78% year on year; realized net profit of 1,258 billion yuan, +9.19% year over year; realized net profit without deduction of 660 million yuan, or -42.86% year on year.
Looking at the fourth quarter of a year, 4Q23 achieved operating income of 1,234 million yuan, -7.73% year on year; realized net profit of 930 million yuan, +154.24% year over year, and realized net profit of 385 million yuan without return to mother, +37.84% year on year.
The company released its quarterly report for 2014. In 1Q24, it achieved operating income of 1,208 billion yuan, -0.80%; realized net profit to mother of 187 million yuan, -188.38% year over year; realized net profit deducted from non-mother - 194 million yuan, or -216.81% year over year.
4. Profit forecast
We expect the company to achieve operating income of 54.1, 59.4, and 6.46 billion yuan in 24-26, an increase of 10.1%, 9.7%, and 8.9% year-on-year; net profit to mother of 9.3, 10.5, 1.15 billion yuan, -26.4%, 13.7%, and 9.2% year-on-year. Core assumptions include:
1) Revenue: As Opera actively embraces artificial intelligence and becomes the first independent browser brand in the industry to fully integrate AI, Opera's advertising business and search business are expected to contribute a major revenue increase. The company is expected to achieve revenue of 54.1, 59.4, and 6.46 billion yuan in 24-26.
2) Gross profit margin: Due to the increase in the share of advertising business revenue with lower gross margins, gross margin is expected to decline slightly. The company is expected to achieve gross profit margins of 76.91%, 75.61%, and 74.53% in 24-26.
3) Period expense ratio: As the scale of revenue increases, the company's expense ratio is expected to decline steadily over each period. It is expected that the sales expense ratio will remain 32.14%, the management expense ratio will remain 15.49%, and the R&D expense ratio will be 24.00%, 22.50%, and 21.00% for 24-26.
Investment advice: The company's revenue performance was steady in 23 years, and the overseas Opera search and advertising business contributed the main revenue; the return on the investment business was considerable.
At the same time, the company has accelerated the AI layout. The Tiangongda model has been iterated to version 3.0, and AI applications have launched major products in search, music, and gaming scenarios. Looking ahead to 24 years, the company is expected to continue to make efforts on the AI model and application side. While maintaining leading domestic technology, the company has great potential for commercial monetization. The company is expected to achieve operating income of 54.1, 59.4, and 6.46 billion yuan in 24-26, up 10.1%, 9.7%, and 8.9% year-on-year; net profit to mother of 9.3, 10.5, 1.15 billion yuan, -26.4%, 13.7%, and 9.2% year-on-year; and PE corresponding to market value on May 13 is 49.9x, 43.9x, and 40.2x.
Risk warning: Copyright protection is not as strong as expected, risk of intellectual property not being clearly divided, risk of loss of IP influence, risk of disruption of cooperation with IP or celebrities, risk of changes in popular aesthetic orientation, risk of increased competition, risk of low user willingness to pay, risk of difficult consumer habits, risk of corporate governance risk of content launch falling short of expectations, risk of poor development of generative AI technology, risk of difficult product development, risk of delayed product launch, risk of rising marketing purchase costs, risk of loss of talent, rising labor costs Risk, risk of policy regulation, risk of poor commercialization capacity than anticipated.
If the company's investment business falls short of expectations, the net profit due to fair value falling 30% from 7.0, 8.0, and 850 million yuan to 490 million yuan in 24-26, and the company's net profit to mother will decrease to 7.5, 86, and 940 million yuan in 24-26.