Incident: The company released its 2022 annual report and 2023Q1 performance forecast. It achieved revenue of 910 million yuan in 2022, an increase of 21.9% over the previous year; achieved net profit of 110 million yuan to the mother, an increase of 24.3% over the previous year; and achieved net profit of 110 million yuan after deducting non-return to the mother, an increase of 25.3% over the previous year. 2023Q1 is expected to achieve revenue of 160 to 190 million yuan, an increase of 5% to 20% over the previous year; it is expected to achieve net profit of 1447.8 to 159.75 million yuan, an increase of 45-60% over the previous year; net profit of the non-return mother is expected to be 1369.6 to 15.113 million yuan, an increase of 45-60% over the previous year.

There have been significant improvements on the cost and expense side, and profitability continues to increase. 1) Cost side: The company's gross margin in 2022 was 45.3%, an increase of 2.15 pp over the previous year. The increase in gross margin was mainly due to a sharp reduction in the revenue share of traditional equipment cards and reading and writing devices with relatively low gross margins, from 14.8% in 2021 to 4.6%. 2) Expense side: In 2022, the company's sales/management/R&D expenses ratio was 11.9%/6.3%/0.01%, respectively, down 0.17 pp/0.52 pp/0.19 pp from the previous year. There was a significant year-on-year improvement on the cost side.

The peak of third-generation social security card replacement has arrived, and the number of one-card and AIOT applications has been rapidly released. In 2022, the company's one-card and AIOT application business achieved revenue of 700 million yuan, an increase of 23.2% over the previous year. The rapid growth of the card and AIOT business is mainly due to: 1) In terms of card issuers, the number of cards issued by the company in 2022 was about 36 million cards, card issuance revenue increased by nearly 64% year-on-year, and market share was always leading, and it is expected that 2023-2035 will usher in a peak period of third-generation card issuance, and card issuer revenue will maintain a high trend; 2) In terms of card platforms, in 2022, the company landed on the residents' service card platform in Anhui, Guangdong, Hubei, Jiangsu and other provinces, leading the implementation of the country's first one-card card project, “Wuhu City, One Card City” Connoisseur The construction is deeply involved in the construction of the “Beijing Minsheng Card” superimposed on digital yuan hardware wallets. The “label effect” is highlighted, and revenue is expected to continue to be released.

Social operations and big data businesses have increased rapidly, and data trading products have been actively deployed. In 2022, the company's social operations and big data business achieved revenue of 170 million yuan, a year-on-year increase of 149.1%, and gross margin increased 1.23 pp to 46.44% year over year. 1) In terms of employment products and operating services: The company has joined with 1,000+ service agencies, covering 25 provinces across the country, opening up a complete closed loop from data on employed people to facilitate employment. Under the influence of the Guizhou Bijie Benchmark Project, the company's digital urban and rural employment services in 2022 have been implemented in Guizhou, Henan, Guangxi, Sichuan and other provinces, cities and regions, providing employment services to more than 10 million workers across the country. The employment operation service adopts a fee-per-head model. Profit sustainability is extremely sustainable after project implementation. 2) In terms of data products: The company does not hold social data, but it can deeply integrate authorized government data to serve people's livelihood scenarios. Currently, the company has formed standardized data trading products in the fields of urban employment analysis, government business verification, and personal credit information certification. With the gradual construction and improvement of local data exchanges, the company's data trading products will usher in huge development opportunities.

Profit forecasting and investment suggestions: The company has been deeply involved in government services in the social sector for many years. It is a leading digital integrated service provider for people's livelihood in China and a leading enterprise in building a residents' service card. In the short term, demand for card issuance and “one-card” platform construction continues to expand during the peak period of upgrading and replacement of third-generation social security cards; in the medium term, demand for employment products and operating services continues to expand under the influence of benchmark projects; in the long run, with the establishment of rules such as data authorization and data trading, corporate data trading products will usher in rapid development. EPS in 2023-2025 is expected to be 0.64/0.92/1.31 yuan respectively, and the compound growth rate of net profit of the mother will reach 52.5%. The PE corresponding to the current stock price is 32/23/16 times respectively, maintaining the “buy” rating.

Risk warning: Risks such as the promotion of third-generation social security cards falling short of expectations, digital currency promotion falling short of expectations, promotion of social informatization falling short of expectations, development of the data element market falling short of expectations, and increased market competition.