A civil command information system solution provider under Telecolace, which lays out the three major sectors of civil aviation, urban transportation, and urban governance. Rice Information is a civilian asset platform formed by CLP Rice Information Systems on the basis of CLP 28. It mainly targets the informatization needs of industries such as traffic management, urban road traffic management, and urban governance in civil aviation, and provides overall command information system solutions and series of products with command and control technology as the core.
The company achieved revenue of 1,576 billion yuan in 2022, orders in place by the end of 2022 reached 2.96 billion yuan, and high growth can be expected in 2023.
Why are you optimistic about Rice's information?
Logic 1: Domestic substitution plus industry expansion opens up market space, and the civil aviation management business ushered in a period of rapid growth. The air traffic control (ATC) system is the core of the civil aviation management system. The company has been replaced by domestic production many times in the field of civil aviation management. The market share has reached more than 40%, and is expected to increase further in the future. Furthermore, during the “14th Five-Year Plan” period, China will form an “8+N” large-scale national regional control center layout system, further opening up market space.
Logic 2: Intelligence empowers integrated air traffic control and airport solutions, bringing in 10 billion new markets. The number of small and medium-sized airports in the country is as high as 206 (accounting for 81.1%), but the information technology system is lagging behind and urgently needs to be upgraded. The company piloted an information technology capacity improvement project at Huai'an Airport and was highly recognized by the Civil Aviation Administration. It is expected to expand to other small and medium-sized airports in the future. Referring to the R&D investment budget, the market space for small and medium-sized airports can be expected to be 10 billion.
Logic 3: Most of the downstream applications of urban governance are in the government market, and high R&D investment brings high market share. Looking at downstream applications at the industry level, the market space is vast, the industry concentration is low, and the gross margin is stable; at the company level, Rice Information attaches great importance to R&D investment and has achieved application and industrialization implementation in various segments. In 2020-2022, the company's R&D rates were 6.94%, 6.73%, and 7.53%, respectively. High R&D investment also brought the company a high market share. The total number of bids won by the company in the public credit and emergency command industries ranked first and second in the country during the period 2019-2022.
Logic 4: Electric Coles, the majority shareholder, is the core unit of China's battlefield accusation. It has high asset quality and strong profitability.
In the Russia-Ukraine conflict, the United States and other countries provided extensive artificial intelligence technical support to Ukraine. Ukraine has full-spectrum battlefield situation sensing capabilities, from space-based, air-based, to land-based, and can evaluate the situation on the battlefield in real time. It is expected that China's artificial intelligence battlefield assistance system is bound to usher in great development. Electric Coles is a second-level member unit of 28 companies. It has high asset quality and strong profitability (28 companies had revenue exceeding 10 billion yuan in 2017, and Dencolase's net profit in 2019 reached 1,157 billion yuan). In May 2023, DenColes was selected by the State Assets Administration Commission on the “Science Reform Enterprises” list. In May 2023, many executives of Rice Information have worked and worked part-time for 28 companies or Dencoles. Operating efficiency is expected to improve further under the major trend of state-owned enterprise reform.
Investment suggestions: The company is the leader in civil aviation management systems and enjoys the logic of domestic substitution and industry expansion; the small and medium airport business is expected to open up 10 billion dollars of market space; the majority shareholder, Denkola, is the core unit of China's battlefield complaints, with high asset quality and strong profitability. We expect the company's net profit for 2023-2025 to be 121, 164, and 222 million, respectively, with corresponding PE being 44X, 33X, and 24X, respectively. Covered for the first time, giving it a “buy” rating.
Risk warning: The development of small and medium-sized airports falls short of expectations; reform of state-owned enterprises falls short of expectations; assumptions fall short of expectations.