Incidents:

On October 30, 2023, Electronic Technology Digital released its report for the third quarter of 2023:2023Q3 achieved revenue of 2,668 billion yuan, -0.45% year-on-year, +16.63%; net profit of 146 million yuan, -4.25% year-on-year, and +71.94% month-on-month.

Investment highlights:

2023Q3's performance is stable, moderate and positive, and the profit optimization effect is remarkable

From 2023Q1 to Q3, the company achieved revenue of 6.927 billion yuan, +0.36% year-on-year; net profit of 278 million yuan, -4.54% year-on-year. Among them, 2023Q3 achieved revenue of 2,668 billion yuan, -0.45% year-on-year, +16.63%; net profit of 146 million yuan, -4.25% year-on-year, +71.94%; and net operating cash inflow of 227 million yuan, positive year-on-month. The company's performance improved month-on-month, and operating cash flow improved markedly, showing a certain degree of operational resilience.

From 2023Q1 to Q3, the company's gross profit margin was 19.30%, +2.46pct; sales/management/R&D expense ratio was 8.02%/2.40%/4.51%, respectively, +1.12pct/+0.37pct/+0.28pct.

Among them, in 2023Q3, the gross profit margin of the company was 20.17%, +2.14pct, +0.57 pct; the sales/management/ R&D expense ratio was 7.44%/2.26%/3.72%, respectively, +0.46pct/-0.16pct/-1.10pct, year-on-year respectively, -2.40pct/-0.27pct/-1.14pct.

Financial orders are expected to be released, and digital products are progressing smoothly

Financial Innovation: Starting with 2023Q3, China CITIC Bank, ICBC, Postal Bank, etc. have successively publicized large credit collection orders, and information collection in the financial industry has accelerated. The company expects that the share of the credit and innovation budget of the financial industry may increase to 20%-30% in 2023, and that the credit and innovation structure and absolute amount are on the rise. 2023H1, the overall scale of corporate financial credit and innovation orders has been affected by progress. We expect the 2023H2 demand release or acceleration.

Digital products: The subsidiary Baifei Electronics actively promotes the development of digital products and industry expansion. ① Semiconductors: providing control modules for lithography machines for Shanghai Microelectronics Equipment Group; ② Civil aviation: project contacts with COMAC to develop products related to the C929 model; ③ New fields:

Actively expand development and market expansion in the satellite field. According to the company's forecast, the growth rate of the digital product business in 2023 may be higher than average, which will effectively improve the company's gross margin level and profitability.

The Data Bureau was officially listed, and the digital intelligence business ushered in new opportunities

Digital Intelligence Technology, a subsidiary of Telecom Digital, has Shanghai as its main position, supporting the city's “One Network Management” business data gathering and operation. It has integrated more than 269 types of pan-sensing device terminals and more than 200 application scenarios in 16 districts of Shanghai, and is actively promoting the replication and promotion of the “One Network Management” model throughout the country. In October 2023, it won a new bid for the Shanghai Fire Communication Command System Renewal and Expansion Project (47 million yuan).

On October 25, 2023, the National Bureau of Data was officially listed. The National Bureau of Data is responsible for coordinating and promoting the construction of data infrastructure systems, the integration, sharing, development and utilization of data resources, and the overall promotion of digital China, digital economy, and digital society planning and construction.

Profit forecast and investment rating: The company is China Telecom's listed industry platform and fintech leader in the field of industry digitalization, and digital products are growing rapidly. In the future, it is expected that the accumulation of data elements in key industries will open up potential incremental markets. We expect the company's net profit from 2023-2025 to be 649/8.09/1,080 million yuan, EPS to be 0.95/1.18/1.58 yuan/share, respectively, and the current stock price corresponding to PE is 24.40/19.56/14.65X, respectively, maintaining the “buy” rating.

Risk warning: macroeconomic impact on downstream demand, investment risk, business innovation risk, human resources risk, big data center project risk, etc.