Focus on opinions
Investment advice
Baoxin Software is a witness and leader in the iterative development of domestic steel industry information systems over decades. This article reviews the steel industry's informatization construction process and the company's product evolution. We see Baoxin's accumulation of industry experience, application in cross-process industry scenarios, breakthroughs in high-end technical capabilities, and expansion of the industrial ecosystem.
rationales
Build a full-level, full-process, and full-life cycle software and hardware ecosystem for steel. Baoxin's product system has gone through a leap from focusing on software to the integration of software and hardware, from heavy industry solutions to high-end hardware self-research, from local to cloud, and from steel to the pan-process industry, forming a product layout covering all levels of industrial software, automated processes, and the entire life cycle of informatization services. The company launched its own large-scale PLC in 2021 and promoted the Wanming Bao Luo robot program in 2022. On the basis that the information technology business has already established high industry barriers, it focuses on research and development of low-level high-end control systems, consolidates automated product capabilities, and leads domestic substitution of high-end manufacturing.
Dual carbon and digitally intelligent two-wheel drive are the general trend of industry integration. Driven by supply-side reforms and dual-carbon targets, industrial enterprises are increasing IT investment to reduce costs and increase efficiency, and steel leaders are speeding up mergers and restructuring, driving demand for automated technological upgrading of production lines. At the same time, there is an urgent need to consolidate information systems to achieve unified management and allocation of production schedules across multiple bases and regions to promote the transformation of traditional manufacturing to intelligent manufacturing. We believe that Baoxin has both the certainty brought about by Baowu's leadership in mergers and acquisitions and the growth space given by the trend of intelligent manufacturing. According to our estimates, the steel industry has a potential space of nearly 100 billion yuan for the transformation and upgrading of three-power systems in the field of automation every year.
Commercialization, cloud-based, and platformization extend business boundaries, and industrial digital intelligence leaders are gaining ground. In the process of transformation of the manufacturing industry to intelligent manufacturing, Baoxin has accumulated technical capabilities and industry knowledge in the field of automated electronics. Under the trend of commercialization of industrial software and system cloudification and platformization, Baoxin is leading software and hardware technology breakthroughs with digital twins, AI, and data governance as the core, building an industrial Internet platform to discover incremental value of data, spawning demand for secondary upgrades of information systems, promoting ecological co-prosperity in the steel industry, and is expected to become a leader in industrial digital intelligence spanning multiple industrial ecosystems such as metallurgy, non-ferrous metals, pharmaceuticals and chemicals.
Profit forecasting and valuation
Keep the profit forecast unchanged. Maintaining an outperforming industry rating and maintaining the target price of A/B shares of 73 yuan/4.5 US dollars (based on SOTP, software business corresponds to 60x 2023e P/E, IDC business corresponds to 20x 2023EEV/EbitDA; B shares are 40% off). Currently, A shares correspond to 44/35x 2023/24e P/E, and B shares correspond to 16/13x 2023/24e P/E, respectively, with an upward margin of 23%/35%, respectively.
risks
Steel companies' investment in automation and informatization fell short of expectations; IDC's downstream demand recovery fell short of expectations.