Incidents:
The company released its 2022 interim report on August 29, 2022, achieving revenue of 201 million yuan, a year-on-year decrease of 3.38%, net profit of -91 million yuan, a year-on-year decrease of 544.95%, and net profit after deducting non-return mother's net profit of -98 million yuan, a year-on-year decrease of 222.28%. Performance was slightly lower than expected
Competition in the industry intensified, and major businesses had mixed ups and downs
The basic software business achieved revenue of 72 million yuan, a year-on-year decrease of 40.22%; security products achieved revenue of 69 million yuan, an increase of 30.92% over the previous year; the digital transformation of government enterprises achieved revenue of 34 million yuan, an increase of 299.2% over the previous year; and smart emergency achieved revenue of 26 million yuan, a decrease of 0.05% over the previous year. By industry, telecom customer revenue was 801 million yuan, an increase of 52.49% over the previous year, achieving a significant increase; government customer revenue was 73 million yuan, a decrease of 24% over the previous year. The government and telecommunications are still the company's main business sources, accounting for about 76.43% in total. Among them, the telecom industry's revenue share increased significantly, from 25.44% in 2021 to 40.15%.
Constant increase helps the company develop in the long term
The company issued an announcement on August 24, 2022, and the fixed increase application was approved by the Shenzhen Stock Exchange. The total amount of capital that the company plans to raise will not exceed 2.2 billion yuan, which will be used for Tongseries middleware product excellence capacity enhancement projects, AI-based next-generation sustainable operation safety product development projects, and supplementary working capital. If the fixed increase is successfully implemented, it is expected to enhance the company's core competitiveness and help the company develop in the long term.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2022-24 to be 1,129/14.24/1,783 billion yuan, corresponding growth rates of 30.80%/26.15%/25.20%, respectively, and net profit of 2.73/3.38/387 million yuan respectively. The corresponding growth rates are 9.93%/23.87%/14.64%, EPS is 0.59/0.74/0.84 yuan/share, and the 3-year CAGR is about 16.00%, and the corresponding PE is 30x/24x/21x respectively. Maintain an “increase in holdings” rating.
Risk warning
1. Xinchuang's implementation progress did not meet expectations; 2. Industry competition intensified; 3. Information security and smart emergency services did not meet expectations, leading to loss of goodwill; 4. Technological changes caused the company's products and solutions to fall behind.