Core views

The company released a semi-annual performance forecast for 2024. In the first half of the year, while actively adjusting the revenue structure, the company achieved 18.91% and gross profit growth of 18.91% and 19.08% respectively, and the overall performance was in line with expectations. The company's business structure continues to be optimized, and the G-end business's revenue share continues to decline. At the same time, it launched a “7+3” strategy to focus on core businesses. Businesses such as smart education and smart cars all showed a good growth trend. The company's big model continued to advance in the first half of 2024, and the “iFLY Starfire” V4.0 fully matched the GPT-4 Turbo. With the rapid iteration and continuous enhancement of the company's Spark model, its AI capabilities will be deeply integrated into education, medical and other businesses to help the company develop long-term high quality performance. We estimate that the company's revenue for 2024-2026 will be 23.4 billion, 29.5 billion, and 38.2 billion; net profit to mother will be 0.5 billion, 0.72 billion, and 1.1 billion, respectively; the PE corresponding to the current market value will be 156x, 109x, and 71x, respectively, maintaining a “buy” rating.

occurrences

The company released a performance report for the first half of 2024. The company's revenue for the first half of 2024 was 9.32 billion, up 18.9% year on year; net profit to mother -0.4 billion, 0.074 billion for the same period last year; minus non-net profit was -0.483 billion, compared to -0.3 billion for the same period last year.

Brief review

Revenue and gross profit grew steadily, and overall performance was in line with expectations. iFLYTEK released its performance report for the first half of 2024. The company's revenue for the first half of 2024 was 9.32 billion, up 18.9% year on year; net profit to mother was 0.4 billion, 0.074 billion for the same period last year; and -0.483 billion yuan after deducting non-net profit, compared to -0.3 billion for the same period last year. Looking at Q2 alone, the company's revenue was 5.68 billion, up 14.6% year on year; net profit to mother was -0.1 billion, minus non-net profit was -0.043 billion.

Q2 gross margin was 41.56%, up 3.5pct month-on-month. While actively adjusting the revenue structure in the first half of the year, the company achieved 18.91% and gross profit growth of 18.91% and 19.08% respectively. Furthermore, total sales repayments were 9 billion yuan, an increase of 1.5 billion yuan over the same period last year.

Net profit attributable to mother decreased by 0.474 billion yuan compared to the same period of the previous year, mainly due to the large investment income obtained by the company's shareholding in the first half of 2023. Investment income and fair value changes in the first half of 2024 decreased by 0.149 billion yuan compared to the same period last year; other income decreased by 0.146 billion yuan compared to the same period last year; and preparation for accruing bad debts increased by 0.083 billion yuan compared to the same period last year.

The business structure is continuously optimized, and the “7+3” strategy focuses on core business. By business, education products and services achieved revenue of 2.86 billion yuan in the first half of the year, up 25.14% year on year; medical business achieved revenue of 0.23 billion yuan, up 18.80% year on year; open platforms achieved revenue of 2.34 billion yuan, up 47.92% year on year; smart hardware achieved revenue of 0.9 billion yuan, up 56.61% year on year; and automobile business achieved revenue of 0.35 billion yuan, up 65.49% year on year.

The share of G-side business revenue in the first half of 2024 fell to 27% from 35% in the same period last year, and the revenue structure was further optimized. The IFLY Spark model further enhances the comparative advantages of the company's main products, continues to penetrate the “7+3” strategic business, and forms a generational gap.

China's national artificial intelligence team continues to iterate on large model capabilities. The company's big model continued to progress in the first half of 2024. On January 30, 2024, the first open model iFLY Spark V3.5 was released; on April 26, “iFLY Starfire” V3.5 was released; on April 26, “iFLY Starfire” V3.5 was updated to support long text, long graphics, long voice, the first Spark graphic recognition big model, multi-emotional superanthropomorphic synthesis, and one-sentence sound reproduction; “iFLY Spark” V4.0 was officially released on June 27. “iFLY Spark” V4.0 is the only domestic computing power training based on domestic production computing power, fully autonomous and controllable The big model was opened to all, and the GPT-4 Turbo was fully benchmarked.

Investment advice:

With the rapid iteration and continuous enhancement of the company's Spark model, its AI capabilities will be deeply integrated into education, medical and other businesses to help the company develop long-term high quality performance. We estimate that the company's revenue for 2024-2026 will be 23.4 billion, 29.5 billion, and 38.2 billion, respectively, with year-on-year growth rates of 19.11%, 25.9%, and 29.55%; net profit to mother will be 0.5 billion, 0.72 billion, and 1.1 billion, respectively, with year-on-year growth rates of -23.7%, 43%, and 53.6%, respectively; the PE corresponding to the current market value is 156x, 109x, and 71x, respectively. Maintain a “buy” rating.

Risk warning:

The development of big model technology falls short of expectations: big models are advanced AI algorithms. If subsequent algorithm updates and iterations do not work as well as expected, it will affect the evolution and expansion of the artificial intelligence model, which in turn will affect its commercial implementation, etc.;

Downstream demand falls short of expectations. Currently, the country provides high policy support in the artificial intelligence industry, and downstream demand is strong. If future downstream demand growth falls short of expectations due to various factors, it may adversely affect the company's business revenue growth; technological innovation risks. There is some uncertainty in the AI technology research and development process, and there is uncertainty about the pace of implementation of innovative projects, which may cause revenue to fall short of expectations;

The amount of data and data quality fall short of expectations: Large models require a large amount of high-quality data for training. If there are shortcomings in data quantity and quality, it will affect the model effect.