Revenue growth was steady, and income tax policy adjustments disrupted performance. 1) In the first half of '24, the company achieved operating income of 6.96 billion yuan and net profit of 1.065 billion yuan, up 2% and -15% year on year, corresponding to fully diluted EPS of 0.57 yuan; 2) The company achieved revenue of 3.636 billion yuan and net profit to mother of 0.593 billion yuan in a single quarter, up 0.1% and -15.1% year on year respectively; the decline in performance in the first half of the year and Q2 was mainly due to the impact of the expiration of income tax exemption policies (0.193 billion yuan in the first half of the year) billion yuan, -0.595 million yuan in the same period last year); 3) The net cash flow from the company's operating activities in the first half of the year was -0.18 billion yuan (1.05 billion yuan in the same period last year), mainly due to increased head content reserves, which led to short-term declines in net operating cash flow.

The membership business is growing rapidly, the advertising business is recovering steadily, and the innovative business continues to advance. 1) Member business revenue in the first half of the year was 2.486 billion yuan, an increase of 27% over the previous year, thanks to high-quality content and member benefit systems:

Popular variety shows represented by “Singer 2024” and “Ride the Wind 2024” and popular series represented by “With Feng Xing” and “Happy Parent Group” have strongly driven the rapid growth of membership; innovating the member rights system, launching more than 300 member benefits, and steadily increasing ARPPU value; 2) The advertising business achieved revenue of 1.721 billion yuan, a year-on-year decline of 4%; along with subsequent industry recovery, the company is expected to accelerate the pace of recovery of the advertising business through innovative marketing strategies and optimized AI algorithms; 3) The operator's business revenue was 0.75 billion yuan, -46% year over year, mainly affected by TV industry governance; 4) content e-commerce continued to expand rapidly, with Xiaomang e-commerce's GMV reaching 6.65 billion yuan, a year-on-year increase of nearly 50% and a loss of nearly 40%; 5) In terms of AI, the “Mango Big Model” has officially passed the filing review and incubated more than 40 related application products.

The content ecosystem continues to improve, and content presentation is expected to continue improving in the second half of the year. 1) In the first half of the year, Guo TV launched 56 variety shows of all kinds, with an increase of 17 over the same period last year; 17 movies and TV series were launched, and more than 150 vertical screen skits were launched, and no less than 300 boutique vertical screen skits are expected to be launched throughout the year; 2) In the second half of the year, “Crossing the Pines 4”, “Flowers and Youth 6”, “Continuing Sound: Hong Kong Music Season 2”, “Flowers Bloom”, and “Dance Freak” are expected to continue to improve the members' advertising business; At the same time, reserve more than 80 movies and TV series for future film and TV drama business Strength has laid a good foundation

Risk warning: Membership growth falls short of expectations; technology development falls short of expectations; new business development falls short of expectations, etc.

Investment advice: Maintain profit forecasts and maintain a “better than the market” rating. We expect net profit to be 1.96/2.19/2.44 billion yuan for 24/25/26, corresponding EPS of 1.05/1.17/1.30 yuan, PE = 18/16/14x during the same period. We continue to be optimistic about the company's content and platform operation advantages and growth potential in the AIGC era, and maintain a “better than the market” rating.