Investment event: On August 25, the company released its 2023 semi-annual report. 2023H1 achieved operating income of 749 million yuan, an increase of 9.91% over the previous year; net profit attributable to the parent - 0.1 billion yuan, net profit after deducting non-return net profit - 316 million yuan.

The company's revenue maintained steady growth, and share payment expenses affected net profit. 2023H1 achieved operating income of 749 million yuan, an increase of 9.91% over the previous year. The growth rate of operating costs was higher than the growth rate of operating income. The main reason was the large increase in labor costs. 2023Q2 achieved revenue of 453 million yuan, a year-on-year increase of 11.82%. The year-on-year growth rate was higher than 2023Q1, and the marginal improvement was obvious. 2023H1 The company's net profit to parent was 10 million yuan, and the amortization amount paid by the company's shares during the reporting period was 16.9387 million yuan, which had a great impact on the company's net profit. Excluding the impact of amortization of share payments, 2023H1 achieved net profit of 6.9989 million yuan, an increase of 3.21% over the previous year. By product, various project types such as bank core business, credit management business, and financial company core business in digital finance business solutions have won bids, covering joint-stock banks, leading urban commercial banks, provincial finance companies, etc.; the big data application system solution continues to consolidate the foundation of major customers, win big data projects for nearly 10 policy banks and joint-stock commercial banks. While deepening the foundation of major banks, it continues to expand the advantages of urban commercial banks and won bids for 20 urban commercial bank big data projects; full financial value chain business management solutions and a large internet bank, a rural commercial bank, etc. etc. Cooperation. Overseas, the company has 60+ customers in Southeast Asian countries such as Malaysia, Thailand, and Indonesia, forming many successful cases.

Gross margin is under pressure, and the cost side is under control. 2023H1's gross margin was 36.34%, down 3.17% from the same period. The main reason was that the company's labor cost growth rate in the first half of 2023 was higher than the revenue growth rate and the carry-over revenue from some low gross margin contracts in 2021 and 2022. In terms of expenses, 2023H1's sales expenses were 79 million yuan, up 20.11% year on year; management expenses were 122 million yuan, up 8.90% year on year; financial expenses were 0.5 billion yuan, down 58.76% year on year; and R&D expenses were 70 million yuan, maintaining a stable level. The year-on-year growth rate of 2023H1's sales/management expenses declined compared to the same period last year (36.17%/29.87%).

The size of the bank IT market continues to grow, and the company's customer coverage is high. According to IDC data, IT investment in China's banking sector reached 144.567 billion yuan in 2022, an increase of 8.3% compared to 133.497 billion yuan in 2021. In 2022, China's banking IT solutions market was 648.8 billion yuan, an increase of 10.1% over the previous year compared with 58.93 billion yuan in 2021. As of 2023H1, the company has cooperated with 3 policy banks, 6 large state-owned commercial banks, and all national joint-stock banks; it has cooperated with 46 out of 48 urban commercial banks and agricultural commercial banks with assets of 500 billion yuan or more. The coverage rate for all customers with assets of 500 billion yuan or more has exceeded 96%. The high customer coverage will empower the company's business development.

Investment advice: We predict that the company's revenue for 2023-2025 will be 22.88/27.65/3.324 billion yuan respectively, net profit to parent will be 1.42/2.06/293 million yuan respectively, and the corresponding PE will be 54/37/26 times, respectively, maintaining the “buy” rating.

Risk warning events: business development falls short of expectations, slow policy progress, etc.