Main points of investment

Event: on August 2, 2023, AsiaInfo Technology released its 2023 interim results report. In the first half of 2023, the operating income was 3.282 billion yuan, up 5.6 percent from the same period last year, and the net profit was 212 million yuan, up 12.3 percent from the same period last year.

Profitability continues to optimize, and the three new businesses lead the growth. During the reporting period, the company's revenue increased steadily, achieving operating income of 3.282 billion yuan, an increase of 5.6% over the same period last year, of which three new businesses continued to expand, with a total income of 1.091 billion yuan, up 8.7% from the same period last year. The profit situation further improved, with the gross profit margin reaching 34.9%, an increase of 1 percentage point over the same period last year, and the net profit margin reaching 6.5%, up 0.4 percentage points from the same period last year. The operating condition remained good, and the cash flow used for operation decreased by 75 million yuan compared with the same period last year, an improvement of 13.7%. As of Q2 in 2023, the company's newly signed orders increased by more than 20% compared with the same period last year, the newly signed orders for three new businesses increased by more than 70% compared with the same period last year, and the share of revenue from the three new businesses increased to 33.3%, up 1.3 percentage points from the same period last year.

The operation of Mathematical Intelligence has undergone in-depth changes, and the performance of market fluctuations is under pressure. In the first half of 2023, the revenue of the company's digital intelligence operation business reached 455 million yuan, down 6% from the same period last year. Among them, organizational change brought labor pains to the DSaaS business, while the DI business was also affected by the market. In 2023, the company completed the initial restructuring of its DSaaS line of business with iResearch Consulting, established a wholly-owned subsidiary, iResearch, and further promoted deep changes in business and organization in the first half of 2022, laying the foundation for sustained growth in the future. In smart operations (DSaaS), TMT revenue maintained double-digit growth in the first half of the year. In terms of digital intelligence, government and enterprises, AsiaInfo Technology has obtained a number of digital villages, intelligent communities and other construction and operation integration projects. In terms of digital intelligence consumption, AsiaInfo Technology has obtained a number of digital intelligence operation projects, such as Guangxi Zhongyan, China UnionPay, Postal savings and so on. In terms of digital smart car networking, the company provides automotive companies with user management platform, precision delivery, clue operation and other operational services, including Changan Automobile, Deep Blue Automobile and so on.

The vertical industry is expanding rapidly, and the income of the energy industry is doubling. The company continues to focus on five strategic industries, and has formed an in-depth sustainable development model in the energy, government affairs and transportation industries. In the first half of 2023, the revenue of vertical industries and enterprises' cloud business was 351 million yuan, an increase of 29.4% over the same period last year. Among them, the revenue of the energy industry reached more than 100 million yuan, the business scale increased by two times, and the revenue of the government affairs and transportation industries increased by 40% and 70.7%, respectively. In the energy industry, the company's 5G network products and services cover 29.49% of domestic nuclear power units in transportation and under construction, as well as hundreds of wind farms, photovoltaic power stations, thermal power stations and mines. It is expected that there will still be related demand for more than 2000 thermal power stations and new energy power stations in China in the future. In the transportation industry, the company won the Chongqing East Railway Station project, the largest intelligent hub of high-speed rail in southwest China, with a project amount of more than 600 million yuan, and actively participated in the construction of highway digital system in Yunnan, Hunan, Guangdong and other provinces. In the field of government affairs, the company participated in deepening the operation and construction of big data platform in Binhai New area and Shanghai.

Seize the opportunity of data elements, BSS, OSS business leading development. According to the data calculated by the National Industrial and Information Security Development Center, the scale of China's data factor market will reach 81.5 billion yuan in 2021, and the compound growth rate of the market scale during the 14th five-year Plan is expected to exceed 25%. We predict that under the policy opportunity of promoting the flow of data elements, the company's BSS and OSS business will usher in new rapid growth points. Through active innovation and continuous response to new demand, the company's BSS business has grown steadily and maintained a leading position in the market. BSS business revenue reached 2.105 billion yuan in the first half of 2023, an increase of 1.9% over the same period last year. The company's products continue to push through the old and bring forth the new, launching edge AI, edge AIoT, privacy computing all-in-one and other integrated products, and for AIGC, large model and other new technologies, the initial formation of TelcoGPT product system, in which AIGC has been applied in a number of CRM head seats and metasonic operation and maintenance projects. Relying on the company's market leading position in BSS business, OSS business orders and market scale continue to expand. In the first half of 2023, OSS revenue reached 285 million yuan, up 14.9% from the same period last year. The company's network intelligent products remain the leader in the industry, including 5G network fault management system, network cloud management platform, network resource management system, network function virtualization suite and other product orders are growing rapidly, and the OSS business is expanding rapidly. On July 21, 2023, the company, together with communication operators, Tsinghua AIR and Intel, released the world's first white paper on 6G OSS/BSS technology and AIGC (GPT) communications industry application white paper. On July 25, Intel Corp Senior Vice President Sachin Katti visited AsiaInfo Technology and the two sides launched global strategic cooperation.

Investment advice: considering the extended layout of the company's new business under the data factor track and the stability of the company's main business, we believe that the company will maintain long-term growth in the future. It is predicted that the company's income from 2023 to 2025 will be 87.005, 98.54 and 11.195 billion yuan, an increase of 12.5%, 13.2% and 13.6% respectively over the same period last year. The company's net profit from home will be 1.71 billion yuan, an increase of 14.3% / 11.6% / 10.4%, corresponding to EPS 1.02 / 1.13 / 1.25 and PE 9.4 / 8.5 / 7.7 respectively. Cover for the first time, giving a "buy-B" rating.

Risk hint: the development of data factor market is not as expected, 5G investment is not as expected, and the company's new business expenditure is not as expected.