In 2022, the company achieved revenue of 8.567 billion yuan (+52.11%), net profit of 137 million yuan (+52.52%), and net profit of 133 million yuan (+56.17%) after deducting non-net profit. The application of digital currency finance has ushered in significant progress. The company's digital currency and cross-border payment business is expected to grow rapidly, while benefiting from the comprehensive promotion of Xinchuang; in terms of digital business, the company continues to participate deeply in construction as a leader in the information industry in Yunnan Province. I am optimistic that the company's performance will continue to rise and maintain its buying rating.

Key points to support ratings

Q4 Performance was high, and R&D investment continued to increase. Q4 achieved revenue of 3,232 million yuan (+44.90%), net profit of 88 million yuan (+56.20%), and net profit of 86 million yuan (+67.04%) after deducting non-net profit of 0.86 million yuan (+67.04%). Overall performance in 2022 slightly exceeded expectations, including revenue of integrated solutions of 4,244 million yuan, an increase of 80.61%. In 2022, R&D was invested 534 million yuan (+19.13%), and the number of R&D personnel reached 6,016 (+11.66%), accounting for 74.73% of the total number of employees. Sales/management/finance expenses increased 16.48%/16.68%/222.09%, respectively, and the overall expense ratio was 10.76% (-2.70pct).

Embracing the dividends of the digital economy, digital currency applications are being catalyzed again. Recently, Changshu City announced that starting in May, full wages will be paid in digital yuan to employees of civil servants and personnel of state-owned enterprises. The application of digital currency finance has ushered in significant progress. With the opening of digital currency application scenarios and scales, demand for digital currency function construction is expected to grow rapidly. As a leader in the information industry in Yunnan Province, the company is expected to undertake the construction of digital currency and cross-border payment systems for many major banks, and the digital currency business will advance rapidly. In 2022, the company acquired Yunnan Industrial Investment Software to expand military informatization business. The subsidiary Beijing Nantian Zhilian Information was listed on the New Third Board. At the same time, the company is vigorously developing digital Yunnan business and is deeply involved in major digital government projects such as Yunnan Digital Border Guard, Public Security Data, and Smart Courts. Yunnan Province is a key bridge to Southeast Asia. Under the general environment of the Belt and Road Initiative and the signing of the RCEP, the company, as the only main board IT listed company in Yunnan Province and backed by the Yunnan Industrial Investment Group, is expected to obtain more project opportunities and benefit deeply from the wave of digital economic development.

The business of major fintech banks continues to expand, profoundly benefiting from the increase in IT investment by Xinchuang and banks. The top five clients in the corporate finance industry had a total revenue of 3,089 billion yuan in 2022, accounting for 36.06% of total revenue. They were all large state-owned and joint stock banks. The fintech business is growing steadily: (1) the company helped the Postbank successfully launch a next-generation personal business core system and continue to earn revenue; (2) participated in the construction of the country's first capital flow information monitoring platform for the Hainan Free Trade Port that collects bank fund transaction data in real time; (3) it has built various data center projects such as the Agricultural Bank's Beijing and Bank of Communications. Deeply benefited from Xinchuang and the increase in bank IT investment:

(1) According to the Yiou Think Tank, the investment of the pilot agency Xinchuang will reach 30% of the annual IT expenditure in 2022, and the share of Xinchuang's basic software and hardware will increase to 15-25%; (2) Financial Xinchuang has completed the second phase of the pilot project and entered the comprehensive promotion stage, which catalyzes the corresponding increase in IT demand; (3) Bank IT investment has grown steadily. In 2022, China Merchant/Ping An/CITI/Minsheng Bank's IT investment increased 6.6%/15.9%/16.1%/22.48% respectively.

valuations

Net profit from 2023 to 2025 is estimated to be 193/2.45/301 million yuan, EPS is 0.49/0.62/0.76 yuan (2023-2024 maintains the original forecast), corresponding to PE 39/31/25 times, respectively. Maintain the buy rating.

The main risks faced by ratings

Macroeconomic fluctuations; increased market competition; business expansion fell short of expectations.