Overview of events:

1) on October 21, Desheng Technology released its third quarter report 2023. In the first three quarters of 2023, the company achieved operating income of 551 million yuan, down 10.13% from the same period last year; net profit from home was 51.1299 million yuan, down 18.34% from the same period last year; and net profit from non-return was 50.6649 million yuan, down 16.94% from the same period last year.

2) on October 19, the company issued an announcement on the recent operation of data products. The four data products developed by the company, "Regional Employment situation Analysis", "personal Occupational background investigation", "unemployment Insurance Business Verification" and "Endowment Insurance Business Verification" have been put on the shelves in several data exchanges. At present, the company has signed a contract of 2.7 million yuan, with a clear contract intention of 11 million yuan.

Q3 performance is under short-term pressure, gross profit margin is significantly higher than the same period last year.

In the third quarter of 2023, the company achieved operating income of 161 million yuan, down 27.85% from the same period last year; net profit from home was 6.5253 million yuan, down 72.63% from the same period last year; and net profit from non-return was 5.8504 million yuan, down 74.69% from the same period last year. Under the objective situation of tight macro-economy, the delay of business opportunity orders, the implementation of some existing orders, the delivery of acceptance and settlement, and the delay of collection settlement have a certain impact on the transformation of business orders and revenue recognition of the company. at the same time, the increase in R & D investment in cutting-edge technologies such as data products and government models has objectively brought pressure on profits. As some macroeconomic indicators gradually picked up in September, some of the large business opportunities tracked by early companies have begun to restart.

In the revenue of the company's main business "all-in-one Card and AIoT applications", the revenue of the scenario application platform maintained the growth trend in the first half of the year, with an increase of 96.81% in the first three quarters of 2023 and 51% in the third quarter, fully reflecting the company's card position advantage. In addition, the company's product profitability remained at a good level under continuous investment, with a gross profit margin of 45.27% in the first three quarters of 2023, an increase of 2.65 percentage points over the same period last year.

The data products are gradually mature and the all-in-one card service continues to upgrade.

As a leading comprehensive service provider of people's livelihood in the field of digital economy, with the continuous release of industrial policy dividend of data elements, the expansion of data product business has achieved initial results. Desheng is based on social data, through the identity of data broker, in conjunction with local data exchanges, the use of cross-regional, cross-level government data and social service data for all kinds of personnel qualification verification, employment analysis and so on. In the first half of 2023, four data products developed by the company, "Regional Employment Analysis", "personal Occupational background Survey", "unemployment Insurance Business Verification" and "Endowment Insurance Business Verification" were put on the shelves on several data exchanges, and new data products were put on the market one after another to respond to the needs of the government, banks and human resources enterprises. According to the company announcement, the company has signed a contract of 2.7 million yuan, with a clear contract intention of 11 million yuan, covering Guangdong, Guangxi, Hainan, Shaanxi and other regions, which indicates that the company's data products have mature conditions for application. The company will accelerate the batch landing of data products in 150 + prefectures and cities covered by social security business, actively meet market demand, and is expected to open up a huge market space in the field of livelihood data services.

In the field of artificial intelligence, the government affairs industry model developed by the company has been substantially applied. Based on the government affairs model and virtual digital human technology independently developed by Desheng Technology, Dongguan Social Security Intelligent customer Service has comprehensively upgraded its service and launched a "all-in-one Card" convenient service station, which is a successful pilot again after Qingdao and Nanchang. It marks that the digital intelligence service model of Desheng Science and Technology "knowledge base + data base" has basically taken shape, and the convenient service for the people has been further upgraded.

Investment suggestion

Desheng Technology is a leading comprehensive operation and service provider for people's livelihood in China, benefiting from the peak of card replacement of the third generation social security cards in the short term, developing the data factor market in the medium and long term, and relying on years of data accumulation in the field of social security and people's livelihood. Renshe data operation business is expected to open up growth space. It is estimated that the company's operating income in 2023 and 2024 will be $1.520 billion in 2025, and the net profit in 2025 will be $1.25 billion and $222 million respectively. Maintain a buy-An investment rating with a 12-month target price of 13.47 yuan, equivalent to a dynamic price-to-earnings ratio of 35 times in 2024.

Risk Tips:

The promotion of the third-generation social security card is not as expected; the operation and development of big data is not as expected; the market competition is intensified; and the landing of data factor policy is not as expected.