Key takeaway

Revenue grows rapidly as digital marketing, online literature, and comic drama businesses scale up. Revenue reached RMB1.727bn in 1H26, up 22.16% YoY; 2Q26 revenue reached RMB853mn, up 20.63% YoY. By business, digital marketing revenue reached RMB680mn in 1H26, accounting for approximately 39% of the total and up 78.2% YoY; online social content revenue reached RMB233mn, accounting for approximately 13.5% of the total and up 239% YoY; Bianfeng's online literature and comic drama revenue exceeded RMB100mn in 1H26, marking progress in commercialization.

Earnings quality of core businesses recovers in 2Q26, with an interim dividend proposed.

1) In 2Q26, recurring net profit attributable to shareholders of the parent company reached RMB129mn, up 29.03% YoY, while the recurring net margin rose 0.98 pcts YoY and 4.70 pcts QoQ to 15.10%; net profit attributable to shareholders of the parent company fell 39.49% YoY, mainly due to a sharp decline in gains from changes in the fair value of financial assets.

2) Gross margin was 43.71% in 2Q26, down 10.11 pcts YoY, likely due to changes in accounting treatment and a higher revenue contribution from low-margin businesses; however, it rose 5.31 pcts QoQ from 1Q26; operating efficiency improved, with the selling expense ratio, administrative expense ratio, and R&D expense ratio down 1.78 pcts, 1.62 pcts, and 5.75 pcts YoY, respectively, in 2Q26.

3) The company proposed an interim cash dividend of RMB0.08 per share, representing a payout ratio of 33.66%.

Event

On August 14, the company released its 1H26 interim report. In 1H26, the company recorded revenue of RMB1.727bn, up 22.16% YoY; net profit attributable to shareholders of the parent company of RMB301mn, down 20.13% YoY; and recurring net profit attributable to shareholders of the parent company of RMB220mn, up 8.37% YoY. In 2Q26, revenue reached RMB853mn, up 20.63% YoY; net profit attributable to shareholders of the parent company reached RMB141mn, down 39.49% YoY; and recurring net profit attributable to shareholders of the parent company reached RMB129mn, up 29.03% YoY. The company also announced an interim dividend proposal: It plans to distribute a cash dividend of RMB0.08 per share, including tax, for a total of approximately RMB101mn, equivalent to 33.66% of its net profit attributable to shareholders of the parent company in 1H26.

Quick Take

Revenue: Digital marketing, online literature, and comic drama businesses scale up, sustaining rapid revenue growth. Revenue reached RMB1.727bn in 1H26, up 22.16% YoY; 2Q26 revenue reached RMB853mn, up 20.63% YoY. By business, digital marketing revenue reached RMB680mn in 1H26, up 78.2% YoY and accounting for approximately 39% of the total; online game operations revenue reached RMB562mn, down 20.4% YoY and accounting for approximately 33%; online social content operations revenue, including online literature and AI comic dramas, reached RMB233mn, up 239% YoY, of which Bianfeng's online literature and comic drama revenue exceeded RMB100mn in 1H26; technical information services revenue reached RMB236mn, down 4.49% YoY.

Operationally, the company is advancing AI applications across all domains, data elements, technology and culture, and innovative business segments in parallel.

1. AI: The company has changed its name to “Zhejiang Digital Culture Technology Group,” further reinforcing its strategic positioning in “culture + technology.” Communication Brain has launched a threepart intelligent office suite for media organizations comprising the Communication Large Model, Wanmei, and Lingsi. Zhejiang’s integrated media “one-network” platform has connected 103 media organizations, achieving 98% coverage across the province. It has also provided model “one-network” operating services to Anhui, Inner Mongolia, Qinghai, and Hainan. The company has developed more than ten AI application scenarios in vertical large models, intelligent urban governance, digital and intelligent cultural tourism, and digital and intelligent healthcare. It continues to explore new scenarios such as AI agents, AI designer toys, AI digital doctors, and AI robotics study programs.

On the computing power front, Fuchun Cloud is accelerating its transformation and upgrade from a data center into an intelligent computing center base, with revenue from intelligent computing infrastructure services continuing to grow. It has also built a standardized enterprise-grade AI service foundation based on OpenClaw, delivering results in both AIGC-powered intelligent applications and the intelligent operation of IDC facilities.

2. Data elements : Zhejiang Big Data Exchange Center, a subsidiary controlled by the company, has partnered with YIWU CCC to establish China’s first data circulation platform for the commerce and trade sector. It has also partnered with the Eastern Center of the Film Digital Asset Platform to establish a “Film and television digital assets section,” pioneering the standardized circulation and commercial operation of film digital assets in Zhejiang. The company has participated extensively in developing the national pilot-scale testing base for AI applications and completed end-to-end services for the first transaction at the healthcare pilot-scale testing base.

3. Technology and culture: The casual board and card game business remained stable, while the company expanded into emerging segments such as online literature and AI comic dramas. Bianfeng Network recorded revenue of RMB1.29bn in 1H26, up 27% YoY, and net profit of RMB289mn, down 1.6% YoY. Zhanqi Network continued to expand its presence in the sports segment: Its proprietary “45-Degree Tournament System” supported the launch of the Zhejiang Youth Sports Club Super League platform. It also conducted in-depth operations for the “Wuyue Cup” and the Zhejiang BA, or Zhejiang Provincial City Basketball League, competition areas. In cultural tourism, Zhejiang Digital Image advanced the implementation of AI + AR + cultural tourism projects at Hangzhou Zoo, Nanxun in Huzhou, and Yunhe in Lishui. Its “Leyou 168” county-level cultural tourism project was launched in Cangnan, Wenzhou, and is being replicated and promoted across eight major scenic areas in Zhejiang.

4. Innovative sectors: Earlier investments enter the harvest period MiniMax, ISVision Technology, Robotphoenix Intelligent Technology, Wenge AI, Tongshifu and other companies in which the company invested through funds and other vehicles have completed IPOs. The company has also invested in industry leaders including DEEP Robotics, QingTao Energy, Unitree Robotics, Kunlunxin, Moonshot AI, Zhonghao Xinying, and Cloudnine Information. In 1H26, the company added three external investment projects with actual capital contributions of RMB84.9557mn and disposed of 16 external investment projects with a total project cost of approximately RMB102mn.

Profitability of the core businesses recovered in 2Q26, while the decline in net profit attributable to shareholders of the parent company was mainly due to lower gains from changes in the fair value of financial assets. The net margin attributable to shareholders of the parent company fell by 16.46 pcts YoY in 2Q26, mainly due to a sharp decline in gains from changes in the fair value of financial assets held for trading by the company and its subsidiaries. Gains from changes in fair value were RMB9mn in 2Q26, versus RMB78mn in the same period last year. In 1H26, gains from changes in fair value amounted to RMB16mn, down 87.9% YoY, and their contribution to net profit attributable to shareholders of the parent company decreased by approximately RMB105mn from the same period last year. Excluding non-recurring gains and losses, the net margin was 15.10% in 2Q26, up 0.98 pcts YoY and 4.70 pcts QoQ, indicating a recovery in the profitability of the core businesses. Breakdown:

1) Gross margin remained under pressure YoY but improved QoQ. Gross margin was 43.71% in 2Q26, down 10.11 pcts YoY but up 5.31 pcts QoQ, with pressure easing from 38.40% in 1Q26. The decline in gross margin was likely due to adjustments to accounting treatment and a higher revenue contribution from the low-margin digital marketing and online literature, short-form drama, and animation businesses.

3) Operating efficiency improved, and the period expense ratio declined. The selling expense ratio, administrative expense ratio, and R&D expense ratio decreased by 1.78 pcts, 1.62 pcts, and 5.75 pcts YoY, respectively, in 2Q26. In 1H26, selling expense and R&D expense decreased by 13.6% and 26.5% YoY, respectively, in absolute terms.

The company plans an interim dividend: A cash dividend of RMB0.08 per share, including tax, totaling approximately RMB101mn and representing a payout ratio of 33.66%.

Investment recommendation

1. The company’s core businesses maintained stable operations. The gaming and digital marketing businesses continued to contribute stable revenue and profit, while Bianfeng Network recorded net profit of RMB289mn in 1H26. Net profit attributable to shareholders of the parent company excluding non-recurring gains and losses increased by 29.03% YoY in 2Q26. The corresponding net margin improved both YoY and QoQ, indicating a recovery in the profitability of the core businesses.

2. The company maintains a leading position in data asset development. The Zhejiang Big Data Exchange partnered with YIWU CCC to establish China’s first data circulation platform for the commerce and trade sector. The platform has launched dedicated sections for film and television digital assets, media and cultural data, and other categories. It also completed the first full-process transaction service at the healthcare pilot-scale testing base.

3. Computing power: Fuchun Cloud operates more than 12,500 server cabinets, providing computing support to Alibaba and other companies, while accelerating its transformation and upgrade into an intelligent computing center. Amid tight demand for computing power, its power-on rate is expected to rise, generating additional revenue and profit.

4. The company is deepening its AI presence, while investments in innovative sectors are entering the harvest phase. The Communication Brain's unified network has connected 103 media outlets, with 98% coverage across the province. Portfolio companies MiniMax and Tongshifu have completed IPOs and listed, while the company has also invested in leading companies such as Unitree Robotics, Moonshot AI, and Kunlunxin. The value of its investment portfolio is expected to be continuously reassessed. We expect the company to achieve net profit attributable to shareholders of the parent company of RMB673mn/RMB760mn/RMB812mn in 2026–2028, up 17.5%/13.0%/6.9% YoY. Based on the closing price on August 18, 2026, the corresponding PEs are 19.8x/17.5x/16.4x. We maintain our “Buy” rating.

Risks

Macroeconomic fluctuations; underperformance of data trading pilot policies; tightening of privacy protection policies; regulatory risks in data trading; rising data resource prices; difficulty in determining the fair value of data; lower-than-expected data supply; weaker-than-expected customer demand; regulatory risks faced by clients; slower-than-expected development of data trading infrastructure; potential vulnerabilities in encryption algorithms; risks of personal privacy leaks; intensified competition among exchanges; stricter qualification supervision over data service providers; failure of business model innovation; loss of core talent; and intellectual property protection risks.