Three’s Company logged revenue/attributable net profit (NP)/recurring NP of RMB1,912/130/121mn (-12.82/-40.13/-43.49% yoy) in 1H24. For 2Q24 alone, the revenue/attributable NP was RMB976/81.45mn (-22.71/+6.93% yoy, +4.19/+67.40% qoq). We attribute the earnings decline primarily to the tightening of advertisers' marketing budgets amid soft market conditions. We change our attributable NP estimates for 2024/2025/2026 to RMB483/575/636mn (previous: RMB631/736/843mn). As the company’s earnings include investment income, which can be uncertain, we value the stock at 12x 2024E PE, a discount to its peers’ average of 21x on Wind consensus. Our target price is RMB27.24 (previous: RMB50.47 based on current share capital). Maintain BUY.

Recurring NP -19% yoy for 2023, maintain BUY
Three’s Company’s 2023 revenue/attributable net profit (NP)/recurring NP were RMB5,284/528/408mn (-6.54/-28.3/-18.76% yoy); for 1Q24, they were RMB936/49/48mn (+0.6/-65.53/-42.31% yoy). We estimate attributable NP for 2024/2025/2026 at RMB631/736/843mn. As the company’s earnings include investment income, which can be uncertain, we value the stock at 17x 2024E PE, below its peers’ average of 25x on Wind consensus (we narrow our discount as the company has exited some of its prior investments, reducing the uncertainty from investment income). Our target price is RMB72.59. Maintain BUY.
Macro factors disrupted 2023 revenue, GPM up slightly
Revenue for 2023 fell 6.5% yoy, mainly due to advertising budget cuts by some consumer and internet clients. The overall GPM was 17.7%, up 1.02pp yoy. The sales/administrative/R&D/financial expense ratios were 6.36/1.18/1.02/0.55% (+1.82/0.15/0.28/0.29pp yoy). The increase in sales expense ratio was mainly due to an increase in average number of employees in 2023 compared with 2022, resulting in a rise in compensation. Revenue for 1Q24 grew 0.6% yoy, with a GPM of 17.51%, down 3.85pp yoy, mainly due to delayed progress of some high-profit-margin projects.
Responding to market changes, management quality/efficiency up
The company actively responds to market changes, flexibly adjusts its business strategies, overcomes unfavorable market factors, and jointly focuses on business operations, customer service, and internal management. At end-2023, accounts receivable fell by RMB701mn compared with the beginning of the year and dropped by 22.74% yoy; the debt-to-asset ratio decreased from 51.06% at the beginning of the year to 40.39% at year-end, with the asset/debt structure further optimized. Operating cash flow improved significantly, with operating net cash flow turning positive for full-year 2023, at over RMB128mn.
Launched multi-modal AI products in the marketing field
In 2023, relying on iFLYTEK’s Starfire Big Model 3.0 and its years of marketing experience and data, the company launched multi-modal AI products in the marketing field. “One” AI aims to provide clients with intelligent full-process marketing services including preliminary marketing strategy, creative output in the mid-phase, and intelligent ad placements in the final phase. Three’s Company comprehensively promotes various major projects and new projects, and promotes placement projects in feature programs from CCTV and other media.
Risks: the macro economy coming under pressure; development of AIGC technology missing our expectations.