On August 23, the company released its 2022 interim results. During the reporting period, the company's revenue was 762 million yuan, down 13.5% year on year; adjusted net profit was -97.1 million yuan, and loss narrowed 71.7% year on year.

The increase in the share of revenue from cloud services has driven continuous optimization of the revenue structure, and industrial & infrastructure-related businesses are still booming. In recent years, the downward pressure on the Chinese residential real estate market has been strong. In the second half of last year, the company's cloud service order contracts declined year-on-year. Affected by this, 23H1's cloud service business revenue was 635 million yuan, down 5.1% from the previous year, but its share of current total revenue has further increased to 83.3%, and the revenue structure has been further optimized. Although the overall revenue of cloud services has declined, there is still no shortage of business segments that have performed well by category. During the reporting period, China's residential real estate market was still in a period of industry adjustment and construction. Customer relationship management products that are highly relevant to it had revenue of 469.5 million yuan in 23H1, down 8.0% year on year. Among them, Yunke's revenue of 425 million yuan fell 5.5% year on year. Corresponding to this, the industrial & infrastructure market is still relatively prosperous, and infrastructure investment is still strong, driving the company's related business to show high prosperity in the first half of the year. During the reporting period, the company's project construction, asset management & operation business achieved revenue of 59.6 million yuan and 35.5 million yuan respectively, with year-on-year increases of 12.3% and 12.4%, respectively.

Expense control has achieved remarkable results, and cash flow continues to be optimized year over year. During the reporting period, the company continued to promote organizational optimization, establish a flat management structure, improve employee efficiency, optimize middle and back office allocation, and focus resources on the core needs of target customers. During the reporting period, the company's sales/management/R&D expenses were 4.52/2.64/327 million yuan, respectively, a year-on-year decrease of 9.8%/12.9%/16.8%. The results of cost reduction and efficiency were obvious. At the same time, measures to reduce costs and increase efficiency also guarantee the company's cash flow performance. 23H1's net operating cash flow was -270 million yuan, which is also clearly narrower than -407 million yuan in the same period last year.

The four major strategies continue to advance, and we are firmly grasping the digital opportunities in the real estate market. Although the construction real estate market is still relatively sluggish, the company has always been optimistic about the digital opportunities in the real estate market. In the second half of '23, the company will actively promote the digital transformation of the real estate industry by implementing four major strategies. 1) Continuously optimize project management and asset management solutions, and use generative AI to integrate them with scenarios such as marketing customer acquisition, sales conversion, content production, and data processing, and implement corresponding products. 2) Accelerate the adaptation of Xinchuang, apply more innovative technologies and products to central state-owned enterprise customers; work with a number of ecological partners to create a “IaaS+PaaS+SaaS” real estate industry cloud solution, and introduce more third-party application developers based on the Skyrim PaaS platform to achieve win-win cooperation between customer value and ecological partners. 3) Focus on state-owned enterprise developers to help them build autonomous and controllable digital capabilities; expand local urban investment companies to provide digital solutions including safety management, multi-party online collaboration, and intelligent on-site safety warning functions based on their project construction and management needs; at the same time, build a real estate management and operation system that supports multiple business formats to help improve state-owned assets management capabilities. 4) Continuously improve internal operation efficiency, simplify decision-making levels, focus more resources on front-line business; optimize accounts receivable management processes to further reduce the risk of bad debts.

Investment suggestions: The real estate industry continued to be sluggish in the first half of 2023, and the company's business development also faced great resistance. At the same time, the company's short-term share payment expenses had a great impact on apparent profit values. Based on this, we adjusted our revenue and earnings forecasts for 2023-2025. We expect the company's total revenue for 2023-2025 to be 18.55/22.40/2,773 billion yuan (the original forecast was 2,047/26.16/3.401 billion yuan), and the net profit to be -503/-1.64/200 million yuan respectively (the original forecast value was -0.53/196/513 million yuan), and the corresponding PE was -14/-43/35 million, respectively, maintaining the “buy” rating.

Risk warning: When the development of the real estate industry falls short of expectations, the IT budget amount falls short of expectations due to continued pressure on housing enterprise operations; SaaS product promotion falls short of expectations; risk of increased competitive pressure on R&D talents and product development falling short of expectations; risk of emerging manufacturers entering the market and increased competitive pressure.