Revenue has remained stable under the pandemic. The company discloses its 2022 annual report. In 2022, the company achieved revenue of 1,283 million yuan, a year-on-year decrease of 1.79%; net profit of 184 million yuan, a year-on-year decrease of 15.71%; after deducting non-net profit of 170 million yuan, a year-on-year decrease of 16.24%; and net operating cash flow of 37 million yuan, a year-on-year decrease of 81.44%. In 2022, due to multiple factors such as economic fluctuations, the company's project implementation and acceptance cycle was extended, and implementation costs increased accordingly. Considering being bound by the budget management system of government departments, the information technology market for businesses such as human resources and social security, medical insurance, smart cities, civil affairs, and housing finance has certain seasonal characteristics. System inspection was more concentrated in the second half of 2022. The company's business performance in the fourth quarter was greatly affected, leading to a decline in annual operating income and profit compared to the previous year.

In 2022, the company's gross profit margin was 55.24%, down 0.87pct from the previous year; the sales expense ratio was 13.43%, up 0.96pct from the previous year; the management expenses ratio was 9.84%, down 0.14pct from the previous year; the R&D expenses ratio was 13.55%, up 0.93pct from the previous year.

Health insurance revenue continued to grow. By business sector, the medical insurance business achieved revenue of 614 million yuan in 2022, an increase of 3.07% over the previous year, and achieved a gross profit margin of 57.86%, a decrease of 1.67 pct over the previous year; smart cities and digital government achieved revenue of 609 million yuan, a decrease of 4.71% over the previous year, and a gross profit margin of 54.43%, a decrease of 0.97 pct over the previous year.

Build a health insurance information platform to expand the medical insurance market. In 2022, the company won the bid for the fourth package of the operation and maintenance of the National Health Insurance Administration, and undertook the operation and maintenance of 6 subsystems of the National Health Insurance Information Platform, including the cross-provincial medical treatment management subsystem, payment method management subsystem, basic information management subsystem, basic health insurance business subsystem, and business center platform. The national unified health insurance information platform was basically completed and put into operation in early 2022. Of the 22 provincial health insurance information platforms built by the company, more than 10 provinces have passed the final inspection by the National Health Insurance Administration, and the platform acceptance work in the rest of the provinces is progressing in an orderly manner according to the plan. Through this round of medical insurance construction, the number of medical insurance users served by the company and the number of designated medical institutions both increased significantly compared to the same period in history, and the company's leading advantage and project delivery capability in the field of medical insurance informatization were consolidated and further recognized.

Investment in R&D has been increased, and the innovation system has been improved. In 2022, the company continued to increase R&D investment to 246 million yuan, an increase of 17.85% over the previous year. R&D investment accounted for 19.18% of revenue.

The company has carried out basic technology research and achieved technological breakthroughs in the fields of cloud computing, big data, data element circulation, artificial intelligence, central office, microservices, blockchain, low code, distributed, database, information security, innovation, etc., so as to further improve the company's technology product system and strongly support industry product development and implementation. In terms of Xinchuang, the company relies on autonomous and controllable laboratories to complete industry-level application evaluations and plans for autonomous controllable chips, operating systems, and databases, and has implemented applications in the fields of digital government and medical insurance. Middleware products for mature domestic industry applications, including the Ta+3 component-based integration platform, the Yinhai Cloud Platform (PaaS), the application support platform, the MDLife mobile application development platform, the vision/big data platform, the insight and artificial intelligence platform, and the Yinhai Trustworthy Integrated Client Product have been formed.

Profit forecasts and investment recommendations. We believe that with the continuous implementation of business projects such as medical informatization and digital government, the company is expected to usher in development opportunities in 2023. In particular, the medical insurance business is expected to achieve rapid growth. We expect that the company's net profit for 2023-2025 will be 2.82 (-20.79%) /4.07 (-8.13%) /504 million yuan respectively, and the corresponding EPS will be 0.69 (-38.94%) /1.00 (-29.08%) /1.23 yuan respectively. We will use PE and PS methods to value the company. PE valuation method: According to the comparable company PE, Kuyuan Yinhai was given 45 times the 2023 dynamic PE (+50%), and the corresponding target price was 31.05 yuan. PS valuation method: According to the comparable company PS, Kuyuan Yinhai was given 7.5 times the 2023 dynamic PS, and the corresponding target price was 30.74 yuan. In summary, combining the two valuation methods of PE and PS, the corresponding target price of Jiuyuan Yinhai is 30.74 yuan (+49.67% compared to the target price in 2022), maintaining the “superior market” rating.

Risk warning: Risk of policy implementation falling short of expectations, medical informatization construction falling short of expectations, and increased market competition.