Event: on Aug. 2, the company released its 2023 interim results. 1H23 achieved revenue of 3.282 billion yuan, an increase of 5.6% over the same period last year, and the number of newly signed orders increased by more than 20% over the same period last year. Of this total, the revenue of BSS business reached 2.105 billion yuan, an increase of 1.9% over the same period last year; the revenue of three new businesses (OSS, vertical industry / enterprise Shangyun, and Mathematical Intelligence Operations) reached 1.091 billion yuan, an increase of 8.7% over the same period last year. In terms of profit, 1H23 achieved a gross profit of 1.144 billion yuan, corresponding to a gross profit margin of 34.9%, a year-on-year increase of 1 pct; net profit of 212 million yuan, a corresponding net profit rate of 6.5%, a year-on-year increase of 0.4 pct.

Traditional BSS business performance is solid, three new businesses become the growth driving force: the company adheres to the "one consolidation, three development" strategy, and the business structure continues to be optimized. BSS business maintains a leading position in the market, and its business grows steadily. 1H23 continues to develop cloud native and other innovative technologies to achieve rapid delivery and business development of digital intelligence projects, with revenue growth of 1.9% over the same period last year. Considering the late stage of operator 5G construction, we expect 2H23 revenue to be robust.

The growth rate of the three new businesses has slowed down against the trend, and 2H23 performance is expected to accelerate. The growth rate of 1H23 revenue of the three new businesses is divided: 1) the revenue of Mathematical Intelligence reached 455 million yuan, down 6% from the same period last year, which is due to the reduction in demand of the research report superimposed by the pain of serious reform. Jointly with operators to create a global user insight platform, through consulting and operational services to enhance customer value, the company divides 23% of the revenue into the charging model according to the results, and the business model is constantly optimized. Considering the economic recovery and the policy opportunities for the flow of data elements, we are optimistic that 2H23 business will return to double-digit growth. 2) the revenue of vertical industries / enterprises on cloud has reached 351 million yuan, an increase of 29% over the same period last year, of which the size of the energy industry is nearly three times that of the same period last year. The coverage rate of companies in the nuclear power field accounts for 30%, and the Jiangsu nuclear power project with a contract of up to 140 million yuan has been landed; in addition, 2, 000 thermal power units and thousands of new energy stations have a special network demand of 5G. Due to the vast market of 5G private network in energy, government affairs, transportation and other industries, the growth rate of 2H23 revenue in vertical industries is expected to be higher than that of 1H23. 3) the revenue of OSS business is 285 million yuan, an increase of 15% over the same period last year. The company focuses on network intelligent products, the rapid growth of standard suite orders, the continuous expansion of OSS business scale and market share. The negative growth of 1H23's digital intelligence operation and the slow growth of OSS and vertical industries, but considering that the new orders of three new businesses have increased by more than 70% compared with the same period last year, it is expected to promote the rapid growth of 2H23 and 24 years' performance. The company has guided 25 years' revenue to exceed 10 billion yuan, and the three new businesses have contributed more than half.

The company attaches importance to product research and development and uses innovative technology to promote business development: 1H23's R & D expenditure is 505 million yuan, an increase of 4% over the same period last year, and the R & D expenditure rate reached 15.4%. 1) facing the AIGC model, the company initially formed the TelcoGPT product system of "1 communication cognitive enhancement platform + N cognitive enhancement tools set", combining the communication characteristics that the company is good at with the large model, enabling the numerical intelligence transformation of the communication industry, and has initially expanded 41 business opportunities, such as customer service, code generator and so on. 2) in terms of Xinchuang opportunities, the company's database products (AntDB) established Xinchuang ecological cooperation system, and the ranking of Mo Tianlun was raised from 14th to 11th during the 1H23 period.

Earnings forecast, valuation and rating: the company's 1H23 revenue growth has slowed down, but considering that 2H23 performance has growth momentum and enhanced profitability, we slightly reduce our 23-24 return net profit forecast to 9.05 / 1.065 billion RMB (compared with the last forecast-7% gamma 1% respectively), and increase the 25-year return net profit forecast of 1.258 billion RMB. The company's latest price of HK $10.64 corresponds to 10 times PE for 23 years, with a margin of valuation safety, and is optimistic about the improvement of 2H23 and 24 years' performance growth. Switching to the PS valuation method after the expansion of digital intelligence operations is expected to open the valuation space, giving the target price HK $13.7 (corresponding to 13 times PE for 23 years) and maintaining the "buy" rating.

Risk hint: operator IT investment decline; new business transformation is not as expected; downstream demand recovery is not as expected.