Matters:

On October 29, the company released its 2023 three-quarter report. The first three quarters of this year achieved operating income of 803 million yuan, a year-on-year increase of 21.71%; net profit of 114 million yuan, a year-on-year decrease of 8.69%; and net profit of 102 million yuan, a year-on-year decrease of 11.71%. 2023Q3 achieved operating income of 284 million yuan, a year-on-year increase of 19.95%; net profit of 29.082 million yuan, a year-on-year decrease of 34.03%; and net profit of 25.4031 million yuan, a year-on-year decrease of 40.26%.

Commentary:

The performance is steady, and there are sufficient orders in hand. In the first three quarters of 2023, thanks to the increase in software and operation and maintenance service revenue in the medical insurance, human resources, and provident fund industries, the company's revenue grew rapidly, but due to the extension of the project acceptance cycle, the company's gross margin fell 9.82 pct to 49.58%, putting pressure on profit performance; on the cost side, the sales expense rate/management cost rate/R&D expense ratio of 2023Q1-3 companies year on year -2.10pct/-2.44pct/-0.98pct, overall fee control was good. Meanwhile, according to the company's announcement, the company achieved a steady increase in orders in the first three quarters, and there are currently sufficient orders in hand.

Actively explore the commercialization of health insurance data elements. The company is deeply involved in the medical insurance field and continues to promote the exploration and practice of public data elements. In the context of the accelerated development of market-based data elements, the company provides data governance and data product services, explores data operations, and helps health insurance users carry out industry data governance, processing and data application work. Currently, the company has passed the qualification audits of the Guiyang Big Data Exchange and Shenzhen Data Exchange, and has become a data exchange data provider, and is actively exploring the commercialization of health insurance data elements. As the country continues to improve its top-level design for the data element market, the health insurance data factor business is expected to increase the company's performance.

The industry has a deep accumulation and continues to achieve business expansion. The company focuses on the direction of medical insurance+smart livelihood. In terms of medical insurance, according to information from the company's investor interactive platform, as of October 11, the company has provided DRG/DIP services to medical institutions in more than 10 provinces across the country. At the same time, according to the company's semi-annual report, the company's healthcare industry market has covered 20 provinces and more than 2,800 hospitals across the country; in terms of smart livelihood, the company has covered a total of 21 provinces across the country in the social market, while continuing to participate deeply in the construction of smart city projects such as the construction of smart Rongcheng, actively integrating into the new circuit of new smart city construction.

Investment suggestions: Considering the macroeconomic economy and the pace of company order acceptance, we adjusted our profit forecast. The company's net profit for 2023-2025 is estimated to be 1.90/2.68/363 billion yuan respectively (the original forecast values for 23-25 were 2.76, 3.46, and 419 million yuan), and the corresponding EPS was 0.47/0.65/0.89 yuan, respectively. Referring to the valuation level of comparable companies and the company's leading position in the industry, we gave the company 60 times PE in 2023, corresponding to the target price of about 28 yuan, maintaining the “recommended” rating.

Risk warning: the business development process is uncertain; the release of downstream demand is uncertain; industry competition is intensifying.