Incident: The company released its 2022 annual report. In 2022, the company achieved a total operating income of 1,604 million yuan, a year-on-year decrease of 20.60%; it achieved net profit of 115393 million yuan, an increase of 106.92% over the previous year. The performance was in line with market expectations.

Key points of investment

The business transformation achieved remarkable results, turning a loss into a profit: the year-on-year decline in the company's revenue in 2022 was mainly impacted by multiple domestic and foreign factors that exceeded expectations, such as public health events, and the strategic adjustment of the business focus from data lake construction to data element operation. By business, the company's government-enterprise digital business achieved revenue of 673 million yuan in 2022, with a gross profit margin of 40.37% (+19.95pct year-on-year). The sharp increase in gross margin was mainly due to the company's strengthened operation and management, and the share of pure soft projects in the business increased.

Data operations and services achieved revenue of 260 million yuan, with a gross profit margin of 49.82% (+6.43pct year-on-year).

The digital economy infrastructure achieved revenue of 676 million yuan, with a gross profit margin of 49.67% (year-on-year - 1.39pct).

The company's net operating cash flow in 2022 was 598 million yuan. Accounts receivable and inventory decreased by 423 million yuan compared to the beginning of the year. The pressure drop between the two banks achieved obvious results.

Rapid implementation of data operations: The corporate data bank (now renamed Easy Digital Factory) has carried out in-depth business expansion in the direction of data registration and authorization, data transaction application, etc., and has established a complete government data authorization and approval process system. In 2022, the company launched the country's first “data bank” based on a government data authorization operation model in Fuzhou. Data lake project companies in the four cities of Xuzhou, Zhuzhou, Kaifeng and Fuzhou all obtained local government data governance operation authorization, and signed cooperation agreements with more than 10 provincial big data exchanges to explore regional data element market construction. The company has sufficient project reserves, and data banks will be further implemented nationwide in the future.

Digital infrastructure model innovation: In 2022, the company formed standard solutions involving more than 12 industries including government, operators, research universities, radio and television, and healthcare. In total, more than 100 storage projects were delivered, and million-level projects reached one-third of the total number of projects. In addition to the 32 data lake projects previously expanded, the company innovated and created a new easy-count cloud model, providing a panoramic capability that includes cloud resources, software, and expert cloud services. All cloud services are split into 65 atomic services, which can be combined and matched to form personalized cloud service packages according to actual scenarios. EasyCloud is divided into a government cloud, a state-owned cloud, and an industry cloud. The company has already taken on various projects such as Ganzhou and Dezhou Government Cloud and Remote Sensing Guochuang Cloud. It is expected to continue to expand the market in the future and provide solutions for the full life cycle of data.

Profit forecast and investment rating: Considering that the company will continue to increase various investments during the period of rapid growth, we lowered the company's 2023-2024 EPS forecast from 0.35/0.83 yuan to 0.33/0.58 yuan, and forecast the 2025 EPS to 1.01 yuan. We are optimistic that the company has a significant first-mover advantage in the data factor market. The rapid growth in operating revenue has brought about an increase in profit levels and maintained a “buy” rating.

Risk warning: Competition in the industry is intensifying, policy progress falls short of expectations, and the pace of project implementation falls short of expectations.