Event Overview

1) In early May, the Bosch Software Group 2022 partnership program with the theme of “Sailing Sails a Thousand Sails” was officially launched. The company opened up industry products and service plans in the three major business fields of government smart finance, digital procurement, and smart cities+digital villages. With the goal of “thousand”, it recruited standard partners, project partners, industry partners, service partners from all over the country, empowering partners in all aspects to achieve the transformation from demand to profit.

2) Recently, Bosch Software released its 2021 annual report and 2022 first quarter report. The company achieved revenue of 1,564 million yuan in 2021, an increase of 37.65% over the previous year; achieved net profit of 229 million yuan, an increase of 41.62% over the previous year; and achieved net profit of 212 million yuan after deducting non-return mother's net profit, an increase of 64.79% over the previous year. The revenue for Q1 2022 was 188 million yuan, an increase of 40.84% over the previous year; the net profit of the mother was -43 million yuan, a decrease of 15.4% over the previous year; net profit after deducting the income of the mother was -47 million yuan, a decrease of 12.21% over the previous year.

Promote the application of technology to continue the good development momentum

On the revenue side, revenue from software development and sales services was 348 million yuan, an increase of 26.42% over the previous year, accounting for 22.25% of total revenue; revenue from technical services was 1,097 million yuan, an increase of 40.88% over the previous year, accounting for 70.14% of total revenue. The seasonal distribution of the company's operating performance is obvious. The operating income for the second half of 2021 accounted for 75.3% of the total annual revenue, and the net profit returned to the mother in the fourth quarter accounted for 98.77% of the whole year.

Looking at gross margin, the gross margin of the two main business segments increased. The gross margin of software development and sales services in 2021 was 87.96%, an increase of 8.07 pcts over the previous year, the gross margin of technical services was 62.2%, an increase of 0.93 pcts over the previous year; the comprehensive gross margin was 65.08%, an increase of 1.52 pcts over the previous year, increasing overall profitability.

Looking at the cost side, the sales expense ratio and management expense ratio in 2021 were 16.18% and 15.24% respectively, up 0.93 and 1.02 pct respectively, mainly due to the combined impact of the simultaneous increase in staff remuneration and number of people, the increase in travel expenses and hospitality expenses invested in developing the market, and the increase in incentive expenses resulting from implementing a new phase of the equity incentive plan. The company's R&D expenses were 241 million yuan, an increase of 44.28% over the previous year, and the R&D expenditure rate was 15.41%. The company continuously invests in technology research and development and optimizes the talent structure, promotes the implementation and application of big financial data and blockchain technology in electronic bills, public procurement, smart cities, digital villages, etc., and enhances and improves core technology, platforms, products and integrated solution capabilities.

Seize policy dividends to accelerate the expansion of financial informatization business

In the field of financial electronic bills and non-tax revenue, in line with the country's strategy to promote “Internet+government services”, the company is continuously expanding new regions while promoting in-depth application of the bill system in provinces that have already launched it.

According to the annual report, by the end of 2021, the financial electronic bill business had covered the Ministry of Finance, 30 provinces, and the Xinjiang Construction Corps. With the full implementation of the medical electronic bill management reform, the company used its competitive advantage to obtain a good market share in medical electronic bills. By the end of 2021, medical electronic bills had covered public medical institutions at all levels, with a total of more than 5,000 level 2 and above. In terms of non-tax payments, the non-tax electronic reform has covered 22 provinces across the country.

In the field of smart government finance, the company uses benchmarking projects to highlight its competitive advantage and establish a good reputation. In February 2022, the holding subsidiary Bosch Zhixin stood out from the competition among many manufacturers and successfully won the bid for the Shanghai Budget Management Integrated Information System procurement project, further consolidating the company's leading position in the field of financial informatization.

In the field of public procurement, as the application of information technology becomes more mature and the reform of the government procurement system continues to deepen, the demand for electronic procurement will continue to expand. The company's integrated government procurement business has obtained business from 7 provinces of Fujian, Guangdong, Inner Mongolia, Heilongjiang, Shaanxi, Sichuan and Liaoning, and has entered 9 provinces including electronic bidding and electronic stores. The company continues to expand in university procurement and corporate procurement. Among them, there are more than 180 university customers, distributed in 19 provinces and cities; corporate customers include large state-owned enterprises such as FAW Volkswagen, Ping An Group, and China Life Insurance.

In the field of smart cities+digital villages, the company leverages its advantages in government payment services and one-code access to actively expand the construction and operation model of the City Connect App and enrich the variety of products in this business field. In terms of digital villages, after nearly a year of exploration, a number of products have been launched. Some products, such as the Digital Village Comprehensive Management Platform, the Country House Housing Industry Internet Platform, and the Adoption Agricultural Service Platform, have been piloted in some regions.

Investment advice

Boss Software is a leading enterprise in the domestic financial information technology industry. Under the strategic context of “Internet+Government Services” and the major trend of the digital economy, the company has accelerated the promotion of smart financial services and public procurement services, and continues to consolidate its leading position in the industry. We expect the company to achieve operating income of 1,997/24.33/3016 million yuan and net profit of 2.99/385/489 million yuan in 2022/23/24. Maintaining the Buy-A investment rating, the target price for 6 months was 22.37 yuan, which is equivalent to 30 times the dynamic price-earnings ratio of 2022.

Risk warning: The advancement of financial informatization has fallen short of expectations; the reform of the government procurement system has fallen short of expectations.