Affected by the fact that the overall recovery of the catering, retail, leisure and entertainment industries fell short of expectations, the company's performance in the first half of 2023 was under pressure, but the hotel information system business maintained steady growth, while the adjustment of the revenue structure led to an increase in gross profit. The company adheres to cloud transformation and international development strategies. Relevant products and services accelerated expansion in the first half of the year, and net profit growth due to non-attributable net profit showed a gradual improvement in the company's profitability. Considering the steady growth of the company's core business and the steady progress of the development strategy, the company was given 15 times PS in 2023, a corresponding target market value of 45.6 billion yuan, a corresponding target price of 17 yuan, and a “buy” rating was maintained.

Matters: The company released its semi-annual report for 2023. In the first half of the year, the company achieved operating income of 1,301 million yuan, a year-on-year decrease of -5.93%; realized net profit of 22.31 million yuan, a year-on-year decrease of -35.55%, after deducting net profit of 17.51 million yuan, a year-on-year increase of 372.91%.

The core hotel business is growing steadily, and revenue restructuring has led to an increase in gross profit. 23H1 achieved revenue of 1,201 billion yuan. By product, due to the overall recovery of the tourist hotel industry, the company's hotel information system business achieved steady growth, achieving revenue of 498 million yuan (YoY +8.46%), accounting for 41.52% of revenue (YoY +5.51 pcts). Affected by the limited degree of recovery in the catering, retail, and leisure and entertainment industries, the company's four major catering, payment/retail/tourism system businesses achieved revenue of 2020 million yuan/14.67 million yuan/241 million yuan/11.89 million yuan (YoY +5.35%/+10.62% /+ 4.75%/-19.84%); Third-party hardware support business receivable of 219 million yuan (YoY -32.41%), mainly due to brand adjustments in the first half of the year of the subsidiary's China-Electronics Device Cooperation; independent smart commercial equipment business revenue was 190 million yuan (YoY -8.78%). Along with the sharp decline in the share of low-margin hardware business, the company's overall gross margin improved markedly, reaching 49.49% (YoY +4.10 pcts), and the overall rate remained stable, and net profit after deducting non-attributable net profit improved. 23H1's sales/management/R&D expenses were 1.50/353/152 million yuan (YoY +14.09%/+0.72%/-12.99%), respectively, and the corresponding cost rates were 12.48%/29.42%/12.72% (YoY +2.19/+2.05/-1.03pcts), respectively. The company's R&D expenses have declined markedly, and the remuneration of R&D employees has been significantly optimized, down 18.61% year on year. Sales expenses have increased markedly, mainly due to increased sales activities after the pandemic. The company achieved net profit of 22.31 million yuan, or -35.55% year-on-year, mainly due to the high non-operating income brought by Shiji US sales of Kalibri last year. Along with the improvement in gross margin, the company's non-attributable net profit increased markedly. In the first half of the year, it achieved 17.51 million yuan of non-attributable net profit, an increase of 372.91% over the previous year

Firmly strengthen the platform-based development strategy and accelerate cloud transformation. In the first half of 2023, the company firmly established its platform-based and cloud-based development strategy, and related businesses continued to make progress. Among them, the total amount of payment business transactions directly connected to customers, Alipay and WeChat was 154.4 billion yuan, an increase of about 1.1% over 141.7 billion yuan in the same period last year; the booking platform produced 8.8 million nights in the first half of 2023, a sharp increase of 105% over the same period of 4.3 million nights in the first half of 2022. As of the first half of 2023, the SaaS business had an annual recurring subscription fee (ARR) of 342 million yuan, an increase of about 45% from 236 million yuan at the end of June 2022. The total number of corporate customer (end user) stores at the end of the reporting period was about 80,000 hotels, with an average renewal rate of over 90%. As macroeconomic recovery continues to boost payment demand from downstream customers, the company's platform-based development strategy is expected to continue to advance.

The hotel business market is expanding at an accelerated pace, adhering to the path of international development. In the first half of the year, the company's hotel information management system business continued to expand, and domestic and international brands went hand in hand. 1) Domestic hotel brands: The company has completed 58 new traditional international high-star hotel information system projects, signed 34 new technical support and service users, and signed 1,337 technical support and service contracts. 2) International Hotel Brands: The Shiji Enterprise Platform has been launched at an accelerated pace. A large number of hotels in China of the Intercontinental Hotel Group have begun to be launched, and are close to the goal of deploying 30 hotels per month; as of 23H1, the enterprise platform has launched a total of 135 hotels in Peninsula, Intercontinental, Langting, Ruby, Sircle and other hotel groups. Infrasys Cloud, a next-generation cloud catering management system (cloud POS), is developing rapidly, and a new MSA (Master Service Agreement) has been signed with Hilton Hotels Group, making it the only cloud POS product that has signed a contract with all of the world's most influential TOP5 international hotel groups.

Risk factors: The company's foreign business expansion did not meet expectations; the domestic promotion of the company's subscription services fell short of expectations; the recovery of the catering, retail and entertainment industries fell short of expectations; industry competition intensified.

Profit forecasting, valuation and ratings: As the hotel, cultural and tourism industry continued to recover in the first half of the year, the company's core hotel business continued to grow, but the recovery of other industries fell short of expectations, putting pressure on revenue. The company is firm on the path of cloud-based and international development. It continued to make progress in the first half of the year and continued to promote the improvement of profitability. Considering that the industry is expected to continue to recover in the second half of the year, we maintain the company's revenue forecast for 2023-2025 at 30.40/3.640/4.291 billion yuan, and return net profit forecast of 0.91/1.64/302 billion yuan, respectively. Referring to the average PS level of a domestic SaaS company (Jinshan Office/User Network/Guanglianda) in 2023, considering that the company's cloud-based and international development is progressing steadily and product competitiveness is gradually increasing, the company was given 15 times PS in 2023, corresponding target market value of 45.6 billion yuan, corresponding target price of 17 yuan, and maintaining the “buy” rating.