The company's Q2 performance was under pressure due to factors such as declining market trading activity and the company's contrarian investment. During the reporting period, the company concentrated resources on AI model research and development. We believe that the company has competitive advantages in various aspects such as technical foundation, data accumulation, customer resources, and business scenarios, and has great potential for long-term development, and maintains strong recommendations.
Incident: The company released its 2024 semi-annual report, achieving operating income of 1.389 billion yuan, YoY -5.51%; net profit due to mother 0.363 billion yuan, YoY -20.99%; net profit after deducting non-return to mother 0.344 billion yuan, YoY -23.26%.
24Q2 achieved revenue of 0.771 billion yuan, YoY -10.46%; net profit to mother of 0.259 billion yuan, YoY -23.15%; net profit after deducting non-attributable net profit of 0.245 billion yuan, YoY -26.28%. The performance was in line with expectations.
The decline in market trading activity is dragging down revenue growth. The average daily turnover of A shares in the first half of the year was about 860.9 billion yuan, down 8.24% year on year; the average daily turnover of 24Q2 A shares was about 829.9 billion yuan, down about 7.02% from 24Q1 and 17.28% year on year 23Q2. In terms of average daily turnover, market trading activity declined to varying degrees year-on-year in the first half of the year and the second quarter. As reflected in the company's reporting side, the revenue of the value-added telecommunications business, which mainly relied on traffic monetization, was 0.769 billion yuan in the first half of the year, down 10.96% year on year; fund sales and other business revenue was 0.168 billion yuan, down 4.91% year on year. It is worth noting that in the first half of the year, revenue from advertising and internet promotion services bucked the trend and increased 9.45%, and contract liabilities at the end of the quarter also increased 9.70% to 1.202 billion yuan. We think it may be related to the increase in user promotion and payment brought about by AI.
Investment in R&D and sales bucked the trend and affected net profit performance. Sales, management and R&D expenses in the first half of the year were +8.78%/13.26%/5.12% year-on-year, and the sales period cost ratio was 57.00%, up 5.14pct year-on-year. In the field of R&D, in the first half of the year, the company concentrated resources to invest in large AI models. In the field of sales, the company has increased its marketing efforts to expand its market share. With investment against the trend, the company's net interest rate to mother fell 5.11pct to 26.12%. We believe that with the maturity of the company's AI large model technology and large-scale implementation of related applications, the company's net interest rate is expected to gradually recover and the long-term trend is upward.
HithinkGPT empowers the company's development in many ways. The company released the HiThinkGPT big model at the beginning of the year. It continued to develop and iterate the capabilities of the big model during the reporting period, and applied the capabilities of the big model to the research and development of new products in new fields (such as big model+office assistant), functional upgrades of popular products (such as Huashun Wealth upgrade based on HiThinkGPT, becoming the first financial investment assistant based on the big model in the domestic financial field), and brand promotion through new media channels (achieving accurate promotion of products and services through intelligent marketing). We believe that the company has multi-dimensional advantages such as technical foundation, data accumulation, customer resources, and business scenarios in large-scale model development and application, and has remarkable potential for long-term development.
Maintain a “Highly Recommended” investment rating. The company expects revenue of 3.705/4.324/4.846 billion yuan in 2024-2026 and net profit of 1.393/1.592/1.819 billion yuan, maintaining strong recommendations.
Risk warning: Capital market activity is declining; competition is intensifying due to potentially disruptive technology.