Incidents:
The company released its 2023 three-quarter report. The first three quarters of 2023 achieved operating income of 1,648 billion yuan, an increase of 12.63% over the previous year; net profit of the mother - 248 million yuan, a decrease of 40.85% from the previous year; net profit after deduction of net profit of 264 million yuan, a decrease of 42.38% from the previous year.
In terms of Q3 alone, 2023Q3 achieved operating income of 644 million yuan, a year-on-year increase of 10.32%; net profit of net income of 36 million yuan, a year-on-year decrease of 83.09%, net profit of non-retracted net profit of 41 million yuan, a decrease of 81.16% year-on-year loss.
Comment:
Local governments, operators, and the education industry performed well
According to information disclosed in the company's third quarterly report, the company's local government industry grew 43.90% year on year, the operator industry grew 24.72% year on year, and the education industry grew 16.04% year on year in the first three quarters. The above industries all achieved growth faster than the company's average revenue growth level, bucked the trend under the pressure of a weak recovery in the macroeconomic environment. We believe it was mainly due to the company's marketing side's deep industry cultivation, market decline, and effective implementation of channel development strategies.
Gross margin has increased, cash flow has been greatly improved, and operating quality has been significantly optimized. The company's 23Q3 gross profit margin was 73.03%, up 20.77pct from 22Q3, and 8.51pct over 23Q2. Moreover, gross margin has improved for two consecutive quarters, mainly benefiting from an increase in the share of high-margin business.
The company's net cash flow from 23Q3 operating activities was 112 million yuan, which changed from negative to positive, a significant improvement over the 22Q3 operating cash flow level (net cash flow from 22Q3 operations was -336 million yuan). We believe that the improvement in the company's 23Q3 operating cash flow was due to the open source and savings strategy adopted by the company: on the one hand, increasing the effectiveness of accounts receivable recovery, the cash received from selling products and providing services increased 97.27% year over year; on the other hand, the company reduced personnel expenses, and wage payments fell 25.11% year on year.
Strict fee control to accelerate profit release
Benefiting from the continuous optimization of the personnel structure, the company has achieved remarkable results in improving quality and efficiency, and per capita income has increased significantly. On the R&D side, the company has completed pre-investment and comprehensive layout in cloud computing, cloud security, innovation security, data security, industrial Internet security, and vehicle network security. The R&D cost rate for the first three quarters fell by 7 pct year on year; on the sales side, the company's sales expenses for the first three quarters fell 0.95 pct year on year.
Profit forecasting and valuation
Considering that the market showed a positive recovery trend in the first half of the year, and with the support of the company's quality and efficiency measures, we predict that the company will achieve operating income of 40.51, 47.41, and 5.714 billion yuan in 2023-2025, and net profit of 378, 5.79, and 712 million yuan. Referring to the closing price on November 1, 2023, the corresponding PE is 29, 19, and 16 times, maintaining the “buy” rating.
Risk warning
Downstream customer budget recovery falls short of expectations; the company's new business development falls short of expectations; industry competition risks increase