The first half of the year was affected by the external environment and the company's active strategic adjustments, and the company's revenue was under pressure. The company continues to focus on its main business. The SaaS product business bucked the trend and maintained positive growth, and its share has further increased. Among them, major merchants and enterprise service SaaS have maintained steady growth, which shows that the company's core business is highly resilient. At the same time, the company implemented fine management and personnel optimization, management and R&D rates declined, and losses narrowed drastically. With the continuous development of China's SaaS industry, the company continues to promote strategic transformation and focus on its main business, and its performance is expected to maintain long-term growth.

Matters: The company released its semi-annual report for 2023. 23H1 achieved operating income of 233 million yuan (YoY -6.94%), net profit of 44.5857 million yuan (YoY 42.61%), net profit of non-attributable net profit of -4908.63 (YoY 41.04%). Among them, in 23Q2, the company achieved operating income of 123 million yuan (YoY -2.96%), net profit of 27.3501 million yuan (YoY 41.74%), net profit of non-return income of 30.9976 million yuan (YoY 38.22%)

Revenue is under pressure due to the impact of the external environment, and the business structure continues to be optimized. Affected by factors such as macroeconomic fluctuations and increased competition in the industry, the company's overall revenue declined in the first half of the year, achieving total revenue of 233 million yuan (YoY -6.94%). The company's SaaS products achieved revenue of 200 million yuan (YoY +0.36%), reflecting the revenue resilience of the company's core products. Among them, the share of total SaaS multi-platform revenue for small and medium-sized businesses increased from 35.85% at the end of 2022 to 41.94%. SaaS for large merchants maintained steady growth, product revenue for core businesses increased 21.26% year-on-year, and enterprise service SaaS maintained steady growth; supporting hardware/CRM SMS/operation service businesses achieved revenue of 2632/373/272 million yuan (YoY -30.13%) /- 18.83%/-69.17%), the company's active strategy adjustment has achieved remarkable results. The share of the SaaS product business has further driven the continuous optimization of the company's business structure. The company's revenue quality improved in the first half of the year, with a comprehensive gross margin of 63.88% (YoY +1.70pcts).

Fine management and personnel optimization improve the company's profitability. In the first half of 2023, the company's sales/management/R&D expenses were 8247/4062/63.58 million yuan (YoY -7.87%/-33.19%/-30.00%), and the corresponding rates were 35.33%/17.40%/27.24% (YoY -0.36/-6.84/-8.97 pcts), respectively, and the cost situation improved markedly. Among them, the main reason for the decline in R&D expenses was that some of the company's SaaS products gradually matured and reduced R&D requirements, and the optimization of R&D personnel led to a reduction in labor costs. At the end of the reporting period, the total number of R&D personnel in the company was 491, a sharp drop of 25% over the previous year; the reduction in management expenses was mainly due to the company's enhanced fine management and optimized personnel structure; overall sales expenses remained stable, and the slight decline was mainly due to business promotion fees and sales staff optimization. The reduction in the company's three fees led to a marked improvement in profitability. In the first half of the year, the company achieved net profit of 44,5857 million yuan, and the loss was significantly reduced by 42.61% compared to the same period last year.

Focus on the main business, adhere to the development of SaaS cloud, and continuously improve product capabilities. The company insists on cloud transformation, actively makes strategic adjustments to reduce the share of business revenue such as hardware, CRM, and operations, and focuses on developing its main business. 1) SaaS for small and medium-sized businesses: The company continues to upgrade core products to enhance service specialization and refinement, increase the customer unit price of products, increase the proportion of users in development with strong stickiness and payment capacity, and stabilize the competitive advantage of the product. 2) Big Business SaaS: The company focuses on big merchant strategies, goes deep into customer business processes, promotes product development and iteration, and continues to improve product competitiveness. Among them, the revenue of Huaimai Xiaozhi's customer service robot increased by 153.45% year on year, Kuaimai Xiaozhi's customer service robot revenue increased 414.16% year on year, and Kuaimai ERP achieved steady growth year over year. In the future, the company is expected to use e-commerce SaaS as the core to achieve long-term steady revenue growth and profit conversion.

Risk factors: The e-commerce industry's recovery falls short of expectations; the company's big players and multi-platform strategies fall short of expectations; market competition intensifies.

Profit forecasting, valuation and rating: In the first half of the year, the company's revenue was under pressure due to the external environment and the company's active strategic adjustments. However, the SaaS product business maintained positive growth, major businesses and enterprise service SaaS maintained steady growth, the company's core business revenue was highly resilient, and management and personnel optimization further improved profitability.

With the continuous development of China's SaaS industry, the company continues to promote strategic transformation and focus on its main business, and its performance is expected to maintain long-term growth. We maintain our 2023-25 revenue forecast of 582/687/812 million yuan, and expect net profit to be -0.52/-0.02/42 million yuan for 2023-25. Considering that the pace of implementation of the company's short-term business is uncertain, and there is some volatility in performance and valuation, we will not give target prices or ratings yet.