Key points of investment:

From social security card providers to comprehensive livelihood service providers. The company develops operating services based on people's livelihood “one-card” capabilities accumulated over many years, and develops data operations and products on the “data” base. Currently, four data products have been listed on the Fujian and Guiyang Digital Exchanges, forming two major sectors: urban residents' service card system construction and data operation and products. Currently, it has pioneered various scenarios such as urban government affairs, employment, life, and finance.

The card business has grown rapidly, and the data business has been developed. Operating revenue for the full year of 2022 was 91 million yuan, +21.9% year on year; net profit returned to the mother was 110 million yuan, +24.34% year on year, maintaining steady growth. The one-card business doubled its revenue in 2020-2022, and the data service business achieved a rapid breakthrough, achieving revenue of 165 million yuan in '22, +150% over the same period. As more benchmark cases are implemented, software-based service products are expected to grow rapidly.

The data elements emphasize efficiency and fairness, and employment-related livelihood data are in line with the overall plan. The data elements are naturally non-exclusive. Under a reasonable allocation system, efficiency and fairness will be taken into account; in fact, it is an important measure for common prosperity. The full use and empowerment of employment data is in line with the overall line. As the number one job in the “Six Stability and Six Guarantees”, employment is of great significance. Therefore, taking the lead in empowering data elements in the fields of employment and people's livelihood not only conforms to overall work arrangements, but can also bring about substantial cost reduction and efficiency.

The one-card card is an important carrier of digital yuan. The short-term revenue exchange cycle is rich, the long-term benefit scenarios are rich, and the software ratio is increasing.

In the short term, benefiting from the “three-replacement cycle” of card+equipment will achieve rapid growth in performance; in the long run, benefiting from the hardware foundation, the high stickiness of software products and high profit margins will support the company's long-term growth. Furthermore, through continuous breakthroughs in scenarios, future business space will be enhanced.

The operation of human social data has set a benchmark plan, and data products have already been put on the shelves. 1) The company created the “Bijie Model” service model, built a big data platform for the city's workforce of more than 6 million, and adopted the SAAS model to help the government improve the efficiency of public employment services and rapidly expand the scale of employment services. 2) Subsidiary Golden Huaqin's “Kiss Little Insurance” is an employment service based on the Internet operation mindset. The number of registered users of the app has reached more than 3 million, and the number of paying companies is close to 20,000; 3) Four data products, “Urban Employment Analysis”, “Personal Career Background Check”, “Unemployment Insurance Business Verification”, and “Pension Insurance Business Verification”, have been listed on the Fujian and Guiyang Digital Exchanges, showing qualifications and abilities in the field of people's livelihood data.

First coverage, giving a “buy” rating. Desheng Technology is a comprehensive digital service provider for people's livelihood. The one-card business has fully benefited from the social security card replacement cycle, and benchmark data operation business cases have been implemented, showing high growth. The company actively participated in the exploration of data elements. Using years of data accumulation and business model expansion, the company has a first-mover advantage in the people's livelihood data element market and is expected to achieve high growth in the second curve under policy guidance. The company is expected to achieve net profit of 180, 2.7, and 420 million yuan in 23-25, and 56 x PE in 23, corresponding to 101 billion yuan.

Risk warning: 1) Third-generation card promotion falls short of expectations; 2) People's livelihood data operation and promotion falls short of expectations; 3) Data product expansion is restricted by policies; 4) Increased competition has led to declining profit margins