23H1's net profit increased 38% year-on-year, maintaining a “buy” rating, and Taiji Co., Ltd. released its semi-annual report. In 2023, H1 achieved revenue of 3,201 million yuan (yoy -34.97%), net profit of 5076 million yuan (yoy +37.79%), net profit of 5076 million yuan (yoy +37.79%), net profit of 46.26 million yuan (yoy +71.16%).

Considering the reduction in the company's low-margin business and the rapid growth of the company's business such as government cloud and data services, the company's profitability continues to increase, and profit forecasts have been raised. The company's net profit for 23-25 is estimated to be 5.1, 6.6 billion yuan, and 900 million yuan respectively (previous values were 5.0, 6.5 million yuan, and 860 million yuan), respectively. According to the segmental valuation method, the 24E Treasury database business (51.29% shareholding) is estimated to have revenue of 492 million yuan, with an average of 24E 17.4x PS (Wind) for comparable companies, with a corresponding market value of 4.4 billion yuan; 24E net profit of 589 million yuan for other businesses, an average of 24E 47.5 x PE (Wind), and 24E 47.5 x PE (Wind), corresponding to a market value of 28 billion yuan, with a total market value of 32.4 billion yuan, and a corresponding target price of 51.95 billion yuan (previous value of 47.10 yuan). Maintain a “buy” rating.

23H1's gross margin was +9.89 pct. Optimistic about the annual increase in profitability, the company's overall gross sales margin of 23H1 was 28.80%, an increase of 9.89 pct over the previous year. Since 23 years, the company's gross margin level has continued to be optimized, and the gross margin of businesses such as network security, autonomous and controllable, system integration services, and cloud services has increased 17.50/0.95/8.81 pct, respectively. 23H1's sales/management/R&D rates were 4.02%, 19.80%, and 2.34%, respectively, up 1.77/7.21/0.44 pct year-on-year, respectively, mainly due to the decline in company revenue. We believe that with the smooth progress of commercialized businesses such as the company's government cloud business, data service business, and treasury database, the company's profitability is expected to continue to improve.

Government cloud business development is accelerating, and data services contribute new momentum

The company's 23H1 cloud service business achieved revenue of 480 million yuan, an increase of 33.76% over the previous year, achieving the fastest growth rate in recent years (22H1/21H1/20H1 cloud service business revenue increased by 27.02%, 18.36%, and 12.83%, respectively). The rapid growth of the cloud service business has mainly benefited from the accelerated expansion of the company's government cloud business to prefecture-level cities. 23H1 successfully won bids for smart city cloud infrastructure and platform construction in Suizhou City in Hubei Province, Pingxiang City in Jiangxi Province, Shenbei New District in Shenyang City, and Jinpu New District in Dalian City. At the same time, the company accelerated the expansion of its data service business, and 23H1 successfully won the bid for a number of data service projects such as the Beijing Big Data Catalogue System and Data Governance. We believe that the capitalization of government data may drive the company's cloud business to continue to accelerate, and the advantages of the company's “cloud+digital+application” integrated model are expected to be highlighted.

Accelerate the construction of the “126 Trusted System”, solidify the data element security foundation, the company deepens the foundation of endogenous security and exogenous security, and accelerates the construction of the 126 trusted system. 1) Endogeny: The company uses core products such as Jincang Database, Huidian OA, and Taiji Fazhiyi Contract Legal Services as entry points to promote the in-depth development of Xinchuang into finance, telecommunications, energy and other industries; 2) Exogenesis: The company builds an integrated platform integrating digital infrastructure and data resource systems to consolidate the security foundation of the data element market. We believe that the company's industrial advantage of “understanding technology+understanding business+understanding data” and the “base” card advantage of data elements are gradually showing, which is expected to drive the company to transform into a data service provider and accelerate growth in high-margin business.

Risk warning: The promotion of innovation and innovation falls short of expectations, and the construction of a digital China falls short of expectations.