Brief performance review

On August 29, 2023, the company released its 2023 interim report. Revenue for the first half of the year was 940 million yuan, up 4.6% year on year; net profit after deducting non-attributable net profit was 0.2 billion yuan, up 32.9% year on year; net profit after excluding share payments and interest accrued on convertible bonds was 50 million yuan, up 38.8% year on year.

Management analysis

By business, in the first half of '23, the company's technology development and technical service business achieved revenue of 590 million yuan and 300 million yuan, respectively, a year-on-year change of 3.6% and -1.4%. It is expected that this is due to the company paying more attention to business quality, selectively selecting high-quality projects, and some projects not being delivered: benefiting from the continuous advancement of financial innovation, the company's system integration business achieved revenue of 0.3 billion yuan, an increase of 1630.9% over the previous year. By region, the company's self-developed card core product, CreditX Meru V2.0, successfully opened up overseas markets, helping to open up overseas markets A Southeast Asian bank completed Visa and financial supervision tests within 3 months. In the first half of the year, overseas, Hong Kong, Macao and Taiwan regions achieved revenue of 3.446 million yuan and 2,479 million yuan respectively, up 100.0% and 14.7% year-on-year. The company's costs and expenses for the first half of '23 increased 7.8% over the same period of the previous year. Among them, gross margin was 28.5%, down 4.5pct from the same period last year, mainly due to the increase in the share of integrated business; sales expense rates and management expenses rates (excluding equity payments) were 5.6% and 6.2% respectively, up from the same period last year 0.5 pct and 0.5 pct remained relatively stable; the company's R&D expenses rate during the reporting period was 12.3%, down 2.8 pct from the previous year; financial expenses increased 17.7% year on year, mainly due to the increase in interest accrued on the issuance of convertible bonds. The company has sufficient reserves of business opportunities in all business lines, and the number of ten-million-level projects won over the same period last year increased by 400%, providing a strong guarantee for continued revenue growth. In the field of credit products, in the first half of '23, the company continuously received 3 large-scale credit projects exceeding 10 million and 1 inclusive credit project of nearly 10 million, adding more than 100 million in project contracts. The company completed the cloud native architecture upgrade of credit products based on the Tianyuan platform. Currently, it has participated in credit platform exchanges with dozens of banks; in the transaction banking sector, the company won 6 bids in the first half of the year, with an average project amount exceeding the level of 2022; the consulting business successively won the bid for more than 10 projects, including core implementation consulting for a major state-owned bank credit card.

Profit Forecasts, Valuations, and Ratings

According to the semi-annual report data released by the company and considering interest payments on convertible bonds, we lowered the company's revenue forecast for 2023-2025 to 22.8/265/3.08 billion yuan; lowered the net profit forecast for 2023-2025 to 1.0/13/160 million yuan. The current price of the company's stock is 62.1/48.7/39.1 times the PE valuation, maintaining the “increase in holdings” rating.

Risk warning

IT spending in the banking sector falls short of expectations; risk of increased competition in the industry; risk of lifting the ban; risk of majority shareholder pledge.