Core views:
24H1 revenue declined slightly year over year, and AI commercialization exploration was ongoing. At 24H1, the company's revenue was 0.71 billion yuan, down 1.8%. On the one hand, 23H1's high revenue and profit base is an important reason for the year-on-year decline in 24H1's revenue and profit. On the other hand, commercial monetization paths for the company's AI-supported business and products are still being explored, and the revenue side is not obvious. We believe that with the deepening and refinement of AI technology in various scenarios, the company is expected to launch more creative AI applications, and differentiated functions will facilitate its commercialization process.
Gross margin declined, which was affected by increased investment related to AI computing power. At 24H1, the company's gross margin was 93.8%, a decrease of 1.6 pct, and operating costs were 43.98 million yuan, an increase of 32.6%. The main reason was that the company's increased investment in AI led to a rapid increase in computational power-related expenses. In January 2024, the company launched a large “canopy” model. We believe that although the company's investment in the AI business affects gross profit margin in the short term, its position on the AI model is mainly empowering, and subsequent investment in computing power resources will remain within a reasonable range, and the impact on gross margin is limited.
AI technology empowers various businesses and products, and commercial implementation continues to be explored. Currently, the company not only uses AI technology to empower existing products such as Wanxing Meowying and Wanxing Youzuan, but also launched new intelligent applications such as Wanxing Broadcom, Selfie U, and Media.io Studio. In 24H1, the company completed the development or implementation of more than 100 AI algorithms, and achieved a total of over 100 million calls. Based on this, the company plans to use AI add-on packages and AI membership fees to charge fees. In the second half of '24, I am optimistic about the room for performance growth brought about by the intelligent upgrading of the company's products and the commercialization of AIGC products.
Profit forecasting and investment advice. From 24 to 26, the company's revenue is estimated to be 1.701 billion yuan, 1.998 billion yuan, and 2.432 billion yuan respectively. Considering Wanxing Technology's position and future development space in the domestic digital creative field, referring to comparable company valuations and giving a 2024 7X PS valuation, the reasonable value of each share is 61.6 yuan/share, maintaining an “gain” rating.
Risk warning. Uncertainty about AIGC's commercial implementation; competition in the application software market intensifies; B-side market expansion falls short of expectations.