Core viewpoints

The company is the listed industrial platform and the leading unit of financial technology in the digital field of China Electric Power Group. Wholly-owned subsidiary Baifei Electronics deeply ploughs embedded computing hardware products, has been applied in high-end industrial control and other "hard technology" fields, and is in contact with civil aviation projects. The company's 23H1 achieved operating income of 4.26 billion yuan, an increase of 0.87% over the same period last year, and revenue grew steadily. Among them, the digital product business is mainly composed of intelligent computing hardware and software and mathematical intelligence application software business, with rapid revenue growth and continuous improvement of core competence.

Event

According to the company's semi-annual report for 2023, the company's 23H1 achieved operating income of 4.26 billion yuan, up 0.87% from the same period last year; net profit from home was 132 million yuan, down 4.87% from the same period last year; and 129 million was deducted from non-return net profit, down 18.56% from the same period last year. 23Q2 realized revenue of 2.29 billion yuan, down 5.93% from the same period last year, realized net profit of 85 million yuan, up 6.75% from the same period last year, and deducted 83 million of non-return net profit, down 5.52% from the same period last year.

23H1's homing net profit declined compared with the same period last year, mainly due to the company's acquisition of Baifei's electronic equity in August 2022, and the retroactive adjustment of 2022H1's homing net profit after the consolidated statement.

Brief comment

The company is a leading provider of digital solutions for the industry, a provider of high-performance digital modules and intelligent computing platforms, and a listed industrial platform and financial technology leader in the digital field of China Electric Power Group. The company's main business includes three major business sectors, including industry digitization, digital products and new digital infrastructure, and continues to build a "1x 2N" industry digital architecture system. 23H1 has achieved positive growth in revenue from digital products and new digital infrastructure, and the industry's digital business has been promoted in an all-round way.

Wholly-owned subsidiary Baifei Electronics deeply ploughs embedded computing hardware products, has been applied in high-end industrial control and other "hard technology" fields, and is engaged in civil aviation projects.

The main products of Baifei Electronics include embedded computers, high-performance signal processing, high-speed network switching and so on, which are widely used in high-end manufacturing, industrial control, civil aviation and other fields.

The control module of the company's high-end products in the front control system in the high-end industrial control field has been verified by a large number of applications, and provides a variety of domestic computing and control modules and systems to semiconductor equipment manufacturers. And the company is actively seeking market cooperation in the field of civil aviation, and is currently carrying out project contacts for the development of civil aviation related products.

1. The three major businesses of the company have been promoted solidly, and the business of digital products has grown at a high speed.

1) focus on financial technology, the digital business of the industry has been promoted in an all-round way, and the gross profit margin has increased steadily. The company adheres to the brand-new strategic orientation of "building an overall digital solution for the industry", and continues to build diversified intelligent application scenarios solutions in financial technology, digital transportation, digital water conservancy, intelligent medical care, intelligent manufacturing and other industries. the company has taken root in the financial technology industry for many years, and has successfully developed the application of financial technology scenarios such as Guotai Junan in the field of rapid trading of securities and futures. Continue to enable Bank of Communications data center and other financial digital base services. Subject to the downward pressure of the economy, 23H1 is in short supply and demand. Revenue from the industry's digital business is 3.811 billion yuan, down 2.54% from the same period last year, gross profit increased by 8.30% year-on-year, and gross profit margin increased by 1.80% over the same period last year.

Xinchuang's localization business is growing rapidly. The company focuses on building the industrial ecology of Xinchuang, building joint laboratories with customers in industries such as the Shanghai Stock Exchange and Shanghai Unicom, and focusing on promoting financial Xinchuang, stable operation of the authorized laboratory of the Financial Xinchuang Ecological Laboratory of the people's Bank of China, the smooth implementation of Bank of Communications open source governance platform online operation. The cooperation scale between 2023H1 and the leading domestic manufacturers is in the leading position in the industry, and the industry trust innovation contract has increased by about 71% compared with the same period last year. The company is an important strategic partner of Huawei, providing Huawei with products and solutions in many product areas such as Datong, network security, storage, Huawei cloud and digital energy in finance, intelligent manufacturing, digital government and other industries. Huawei was awarded the best global sales partner in 2022.

2) the digital product business is mainly composed of intelligent computing hardware and software and mathematical intelligence application software business, with rapid revenue growth and continuous improvement of core competence.

The company insists on innovation-driven, focusing on artificial intelligence, big data analysis, digital engine, large model, industry intelligence and other technical directions. create large model products "smart game", create securities and futures high-speed trading service platform software products, create bank data center operation platform and other software products.

The software and hardware business of intelligent computing is mainly Baifei Electronics, a wholly-owned subsidiary of the company, which is mainly engaged in embedded computers, high-performance signal processing, high-speed network switching, data recording storage and information processing products. Based on the research and development concepts of open framework, module coupling, security and credibility, the company carries out independent R & D and customized development of software such as intelligent data processing and digital application support, mainly including IoT situation awareness, data analysis and processing, algorithm model engine, intelligent operation and maintenance operation, multi-dimensional security management and other independent software products and suites, providing digital, networked and intelligent application support capabilities. The revenue of 2023H1 digital products business was 140 million yuan, an increase of 193.91% over the same period last year, and gross profit increased by 291.67% over the same period last year.

3) Digital new infrastructure business has maintained steady growth. The company focuses on data center engineering business, deeply ploughs data center construction business in industries such as finance, government and large enterprises, actively develops IDC operation business, steadily promotes the data center project construction of its own financial cloud base, and two-wheel drive digital new infrastructure business. During the reporting period, the revenue of the digital new infrastructure sector was 322 million yuan, an increase of 12.29% over the same period last year.

2. The company's gross profit margin and expense rate remain stable.

The overall gross profit margin of the company's 23H1 is 18.75%, which is higher than that of 2022. The net profit margin of the company is 3.09%, and the expense rate during the period is 15.52%, of which the sales expense rate is 8.38%, the year-on-year increase of 1.60pct, the management expense rate of 2.48%, the year-on-year increase of 0.29pct, the financial expense rate of-0.36%, the decline of 0.07pct, the R & D expense rate of 5.01%, and the increase of 0.21pct over the same period last year. 23H1 company sales expense rate, management expense rate and R & D expense rate slightly increased mainly due to the economic downturn, revenue growth slowed down, while the company to strengthen market expansion, adhere to talent incentives, pay close attention to innovative R & D, related expenses increased. The decrease in the rate of financial expenses is due to the increase in the company's interest income and exchange gains and losses.

3. Baifei Electronics, a wholly-owned subsidiary, is deeply engaged in "hard technology". Baifei Electronics is mainly engaged in embedded computer digital modules and complete machine products. Baifei Electronics has a stable customer base. From 2018 to 2021, the number of revenue-generating customers increased from 70 to 107, continuously deepening the coverage and service depth of large central enterprises, scientific research institutes and related units under the state-owned enterprise group, and laying a good foundation for future revenue growth. Based on the deep understanding of the performance and architecture of domestic chips such as Godson, Feiteng and Shenwei, the company has solved the problems of difficult adaptation of hardware and software and low adaptability of basic core hardware of the computer platform made in China. Under the premise of independent intellectual property rights, we build a board-level, machine-level and system-level product system with software as the main body to effectively meet the needs of existing and new customers.

In line with the development of the industry, Baifei Electronics extends its existing technological advantages to rail transit, high-end industrial control and other business areas to achieve sustained revenue growth.

The company has established business cooperation with Casco, a leading company in the field of rail transit, to provide semiconductor equipment manufacturers with a variety of domestic computing and control modules and systems. the control module in the front control system in the "hard technology" high-end industrial control field has been verified by a large number of applications.

Second, profit forecast and investment suggestions

The company is a leading provider of digital solutions for industry, provider of high-performance digital modules and intelligent computing platforms, and a leading enterprise in the field of domestic new digital infrastructure business throughout the life cycle. The main business includes industry digitization, digital products and digital new infrastructure, and continues to build "1x 2n" industry digital architecture system.

The industry digital sector focuses on improving the transformation architecture of digital infrastructure, creating global digital infrastructure solutions and products, tamping the industry digital base, establishing intelligent data analysis and processing capabilities, and expanding the application of digital innovation scenarios in the industry. empower customers in all industries. Considering the steady growth of the domestic Xinchuang industry, we expect the revenue growth of the business to be 12%, 10% and 10% respectively from 2023 to 2025, and the gross profit margin is 15.50%, 15.50% and 15.50% respectively.

The digital products plate has long focused on the R & D, production and sales of software and hardware products related to intelligent computing, including embedded computers, high-performance signal processing, high-speed network switching, data recording storage and information processing products. The products are mainly used in radar communications, high-end manufacturing, industrial control, rail transit, civil aviation, financial technology and other industries digital and high-end electronic equipment fields. To achieve high-value software and hardware delivery, the main customers include aviation, aerospace, shipping, electronics, power, transportation and other industries overall units and head enterprises. Considering the growth of Baifei's hardware and software business, we expect the company's revenue to grow by 30%, 25% and 20% respectively from 2023 to 2025, with a gross profit margin of 60%, 60% and 60%, respectively.

The new digital infrastructure plate provides engineering construction and services covering data center, building intelligence, consulting and design, general contract management, engineering construction, operation and maintenance guarantee, industry evaluation, and so on. Committed to building a minimalist, green, intelligent and secure next-generation data center. Considering the gradual maturity of the data center construction industry, we expect the company's revenue to grow by 0%, 0% and 0% respectively from 2023 to 2025, with a gross profit margin of 9%, 9% and 9%, respectively.

To sum up, we expect the company's operating income from 2023 to 2025 to be 11.084 billion yuan, 12.244 billion yuan and 13.5 billion yuan respectively, up 12.29%, 10.47% and 10.26% respectively over the same period last year, and maintain steady growth, with a comprehensive gross profit margin of 18.41%, 18.87% and 19.22%, respectively. We expect that with the gradual completion of customer expansion, the operation will be gradually stable, and the expense rate will remain stable during the period.

In the end, we expect the company to achieve a net profit of 6.24,7.44 and 863 million yuan respectively from 2023 to 2025, an increase of 20.04%, 19.23% and 15.98% respectively over the same period last year. The PE valuation corresponding to the current market value is 26.5,22.2 and 19.1 times respectively, covering it for the first time and giving it a "buy" rating.

Risk analysis and sensitivity analysis

(1) the risk of macroeconomic fluctuations and lower-than-expected capital expenditure in the financial sector.

At present, the company's financial industry accounts for a relatively high proportion of digital revenue. If the financial industry is affected by macroeconomic fluctuations and capital expenditure is reduced, assuming that the year-on-year growth rate of business income in 2023 drops from 12.29% to 11%, 10% and 9%, the expense rate remains unchanged, and the company's net profit in 2023 is 617 million yuan, 660 million yuan and 688 million yuan, respectively.

(2) the competition in the industry intensifies and the risk of the decline of the company's gross profit margin.

If the competition in industries such as digitization and digital new infrastructure intensifies, and the company's gross profit margin declines, the company's overall business gross profit margin in 2023 will fall from 18.14% to 17%, 16% and 15%, with the expense rate unchanged during the period. The company's net profit in 2023 was 468 million yuan, 357 million yuan and 246 million yuan, respectively.

(3) the promotion of Xinchuang's localization business is not as good as the expected risk.

A large part of the company's business income comes from the localization business of Xinchuang, and the industry of Xinchuang has a certain policy relevance, if the policy support of the industry of Xinchuang is weakened in the future, and the localization order of Xinchuang is lower than expected, or it may have a greater negative impact on the company's revenue, the related business revenue may be lower than expected.

(4) the risk of losing the company lawsuit.

The company has filed a lawsuit for breach of contract by the shareholders of Shanghai Jiaoxing Technology Co., Ltd., which has issued a retrial verdict. In view of the uncertainty in the follow-up implementation, it is not possible to judge the impact on the company's current or future profits.