Incident: The company achieved revenue of 2.83 billion yuan in the first half of 2023, a year-on-year decrease of 4.1%, mainly due to delays in bidding plans for information and communication collection and other businesses, and delays in signing; realized net profit of 250 million yuan, an increase of 8.2% year-on-year; net profit of non-attributable net profit of 210 million yuan, a year-on-year decrease of 4.5%. In the second quarter of 2023, the company achieved revenue of 1.5 billion yuan, a year-on-year decrease of 14%; realized net profit of 180 million yuan, a year-on-year decrease of 2.3%.

Profitability is good, and R&D investment has increased. In the first half of 2023, the company's gross sales margin was 18.8%, down 0.1 pp from the previous year; the net sales margin was 8.8%, up 1 pp from the previous year. This is mainly due to the company's non-current profit and loss of 0.4 billion yuan in the first half of the year, a large year-on-year increase. The sales expense rate/management expense ratio (including R&D expenses) /financial expense ratio were 3.1%/9.6%/-0.3%, respectively, +0.03 pp/+0.8 pp/-0.2 pp year on year, respectively. The company increased investment in R&D. The R&D expenditure rate was 4.1%, an increase of 0.7 pp over the previous year.

The digital power business is rapidly expanding, benefiting from the digital and intelligent development of energy to boost demand. In the first half of 2023, the company's power sector business achieved revenue of 7.1 billion yuan, an increase of 215.9% over the previous year. Among them, Sichuan Zhongdian Qixing Information Technology, a wholly-owned subsidiary of the company, achieved revenue of 510 million yuan in 2023H1, an increase of 31.8% over the previous year; the net interest rate was 7.4%, which was close to the same level over the previous year. In recent years, China has successively introduced policies related to energy systems to promote the development of intelligent energy regulation and control systems, etc. Along with the construction of a new power system, the electricity marketization process is progressing steadily. The company has formed characteristic products in various fields such as digitization of power grid production and response to the power demand side, and is actively expanding the upstream and downstream markets of the energy industry chain with power grids as the core. The scale of business is expected to continue to expand in the future.

Orders continue to grow, supporting long-term stable development of performance. In August 2023, the company announced that Beijing Zhongdian Puhua Information Technology Co., Ltd., a wholly-owned subsidiary, won the bid for Inner Mongolia Electric Power (Group) Co., Ltd.'s next-generation marketing management information platform development and integrated implementation project, with an order amount of 270 million yuan. According to the company's semi-annual report for 2023, the subsidiary Beijing CLP Puhua Information Technology's main business is the digitization of power grid operations, etc., and achieved revenue of 91 billion yuan and net profit of 70 million yuan in the first half of the year. In the future, the company is expected to rely on its technological and resource advantages in the field of energy digitalization to further enhance its development potential in the fields of 5G electricity, artificial intelligence, innovation, etc., and continuously optimize the “cloud network integration” industrial layout.

Profit forecasts and investment recommendations. The company's revenue for 2023-2025 is estimated to be 8.93 billion yuan, 10.52 billion yuan, and 12.28 billion yuan respectively. The net profit growth rate for the next three years will be 18.2%/18.5%/13%, respectively. The company is accelerating research and development of power platform technology and actively expanding the digital business market. Performance is expected to continue to grow and maintain its “ownership” rating.

Risk warning: The risk that investment in UHV projects falls short of expected risks; investment in power grid digitization falls short of expected risks; core product iterations fall short of expectations.