1H24 results are basically in line with our expectations

The company announced 1H24 results: revenue of 2 billion yuan, a decrease of 5%; net profit to mother of 45.07 million yuan, a decrease of 28%; after deducting non-net profit of 40.26 million yuan, a decrease of 18%. Among them, 2Q24 achieved revenue of 1.04 billion yuan, a year-on-year decrease of 10%; net profit to mother was 30.45 million yuan, a year-on-year decrease of 30%; after deducting non-net profit of 31.32 million yuan, a year-on-year decrease of 3%. 2Q24 revenue and profit were generally in line with our expectations.

Development trends

The main celebrity marketing business is running well, and we are exploring effective celebrity marketing paths. The company continues to use the WEIQ platform to link advertisers and influencers (content creators), and its main business, celebrity marketing business, maintains a good business momentum. The WEIQ platform, the celebrity marketing platform of 1H24, has accumulated 0.203 million registered merchants, an increase of 3,225 over the end of 2023; 1.671 million professional celebrity accounts, an increase of 0.202 million compared to the end of 2023. In addition, the company is also trying to combine celebrity marketing with performance advertising, and the WEIQ platform realizes omni-channel intelligent delivery. According to the company announcement, 1H24 cooperates with platforms such as Xiaohongshu to actively develop KFS content marketing portfolio strategies, combining the influence of celebrities with information flow advertising and search advertising, and we determine or help the company's WEIQ platform stabilize advertisers' budget share.

Expense control is effective, and credit impairment losses affect profits. 2Q24 continued its effective cost control strategy. The total absolute value of sales/R&D/management decreased 16% year over year, accounting for a total revenue decline of 1ppt to 12% year over year. Credit impairment losses dragged down profits. 1H24 confirmed a credit impairment loss of 24.44 million yuan, of which 2Q24 confirmed 17.38 million yuan. Our judgment is mainly due to the fact that upstream advertisers are still under pressure to operate, affecting the recovery of the company's accounts receivable. According to the company announcement, the company actively adjusts the customer structure and strengthens cooperation with brand customers, and we believe it is expected to improve cash flow performance.

Follow the progress of AI empowering and innovating businesses. The company said that AI capabilities are expected to accelerate the progress of the company's celebrity marketing platform into a new, more intelligent and refined ecosystem. Among them, the AIGC copywriting tool “Inspiration Island” launched by the company has already been launched on the enterprise side. We believe it is expected to collaborate better with the company's main business to enhance content-side productivity and marketing-side effectiveness of celebrity marketing. In addition, the company is actively expanding its innovative business. The company's “Rainbow Universe” has launched Apple Vision Pro. The company said it also incorporates AI technology, focuses on B-side services, and explores VR, MR, and AIGC applications in cultural tourism, cultural tourism, and expo.

Profit forecasting and valuation

Maintaining profit forecasts, the current stock price is trading 37/33 times 2024/2025 P/E. Maintaining an outperforming industry rating and a target price of 4.5 yuan corresponds to 48/44 times the 2024/2025 P/E, with 31% potential upside.

risks

The recovery in advertising demand falls short of expectations, innovation business is progressing slowly, and AI-related policy risks.