Event Overview:
On August 26, Desheng Technology released the “2023 Semi-Annual Report”. In the first half of the year, the company achieved operating income of 390 million yuan, an increase of 0.04% over the previous year; realized net profit of 44.6046 million yuan, an increase of 15.06% over the previous year; and achieved net profit of 44.814,600 yuan, an increase of 18.29% over the previous year.
H1 gross margin continues to rise. Looking at Q2, the rapid growth of the one-card software platform, the company achieved operating income of 218 million yuan (-6.45%), net profit of 29.0583 million yuan (+0.96%), and net profit of non-attributable net profit of 30.467 million yuan (+7.13%).
By business, one-card and AIOT applications achieved revenue of $312 million (+10.51%), with a gross profit margin of 48.57% (+1.92pct); social operations and big data services achieved revenue of 68.8606 million yuan (-21.37%), with a gross profit margin of 39.96% (+0.24pct). The overall gross margin for the first half of the year was 46.65%, up 2.2 percentage points from the previous year. This was mainly due to the increase in the share of software platform revenue in the one-card business and the increase in the degree of standardization of data products.
The nationwide promotion of the residents' service card business contains huge market space. According to the semi-annual report, as of August 2023, the number of card holders nationwide reached 1.37 billion, covering 97% of the population, and the number of electronic social security card holders was 8.3 billion. Taking advantage of the urgent need to build a one-card service card program for residents all over the country, the company has promoted the construction of one-card service platforms in all regions through a complete service system such as active card issuance. Using a “data base+central station+scenario” method, it has successfully launched a resident-service card platform in more than 50 cities in 10 provinces including Anhui, Guangdong, Hubei, and Jiangsu.
In the first half of the year, in “One Card and AIoT Application” revenue, scenario application software platform revenue increased 122% year-on-year, fully demonstrating the company's obvious card space advantage.
On the Karate People's Livelihood Data Element Race Track, the data product is expected to promote the replication company as a livelihood data service provider. It is committed to forming a complete closed loop of “data accumulation,” “data development,” and “data operation” based on the application of various scenarios of the Residents' Service Card, combined with a number of core livelihood data applications such as employment services and credit reporting verification. According to the “Research Report on the Application of People's Livelihood Data Elements” published by China Metallurgical CDI, China's livelihood data element market will reach 45.9 billion yuan by 2025.
The company actively integrated into the development of the domestic digital commerce ecosystem and became one of the first data brokers of the Fujian Big Data Exchange. The company's four self-developed data products, “Regional Employment Situation Analysis,” “Personal Career Background Check,” “Unemployment Insurance Business Verification,” and “Pension Insurance Business Verification”, play a huge role in improving the digital public employment service system for the government and recovering social security fund losses. They have been accepted by many data exchanges (such as Shenzhen Data Exchange, Fujian Data Exchange, Guiyang Data Exchange, East China Jiangsu Big Data Trading Center, etc.) and successfully listed. They will be vigorously promoted and replicated in cities covered by the company's one-card business this year. Furthermore, as a high-quality data service provider in the vertical field of human resources and social affairs, the company participated in drafting and formulating the “Data Brokerage Practitioner Evaluation Specification” team standard during the reporting period, and successfully published it at the “2023 Global Digital Economy Conference”. We believe that with years of accumulation in the field of livelihood, the company's successfully launched data products are expected to fully unleash the application value of data elements and contribute to the company's future performance growth.
“Credit Medical Treatment” has been launched one after another, and “fund disbursement” accurately supervises credit medical treatment. The innovative social security finance product “Credit Medical Treatment Insensitive Payment” launched by the company has opened up government data and bank credit systems, and has also achieved a digital upgrade of cross-regional credit payments in the Yangtze River Delta region. According to the semi-annual report, “Credit Medical Insensitive Payment” has been connected to more than 1,400 medical institutions across the country, with a cumulative transaction amount of nearly 200 million yuan. It has been launched in 30 hospitals in Guangzhou, Dongguan, Zhongshan and other cities. In the future, 100 Guangdong hospitals will be launched, and has received many reports from CCTV channels. In terms of fund distribution services, the company provides a continuous and complete fund distribution service system for districts and counties by providing a “distribution platform+supervision service” model. Through blockchain technology, the company effectively helps the government achieve “accurate search for people,” “accurate disbursement,” and “precise supervision”. Currently, the total amount of funds distributed in pensions, migrant workers' wages, government rewards, and various financial subsidies has exceeded 90 billion yuan, benefiting more than 230 million people.
Investment advice
Desheng Technology is a leading comprehensive service provider for people's livelihood in China. It has benefited from the peak of third-generation social security card exchanges in the short term and boosts the data element market in the medium to long term. With years of data accumulation in the social security and livelihood field, the social data management business is expected to reach a ceiling of growth. It is estimated that the company's operating income for 2023/2024/2025 will be 1,442/20.54/2,742 billion yuan, respectively, and net profit to parent will be 1.82/273/343 million yuan respectively. Maintaining the buy-A investment rating, the six-month target price is 18.98 yuan, which is equivalent to a dynamic price-earnings ratio of 45 times that of 2023.
Risk warning:
The advancement of third-generation social security cards fell short of expectations; the development of social big data operations fell short of expectations; market competition intensified; and implementation of data element policies fell short of expectations.