Investment summary:
We are optimistic about the new software in the context of multiple catalytic factors. As a leading insurance IT company, the company's future development is worth looking forward to.
We believe that looking at the short, medium, and long term, the entire insurance industry is catalyzed at the current point in time. Currently, it is at the U-shaped bottom of the industry. With the recovery of new businesses, improvements in the industry's operating level, and the acceleration of the digitization process, the subsequent industry is expected to take advantage of the momentum and have a lot of room.
Short-term: The reversal of the industry's operating conditions has led to an increase in industry valuations, and policies to improve macroeconomic expectations are frequent, and the industry is expected to follow the trend. We believe that pessimism's pressure on market valuations will gradually be eliminated under policy catalysis. Currently, the valuation of the entire insurance industry is still low compared to the Shanghai Stock Exchange 50/Shanghai and Shenzhen 300, and there is still plenty of room;
Mid-term: After various insurance departments have experienced “cleansing” and “improvement” over the past few years, the negative impact of the reduction in the number of insurance agent teams is gradually weakening, and the overall transformation exploration has begun to bear fruit. According to data from the 21st Century Economic Report, the personal insurance subsidiaries of the six listed insurance companies collected a total of 1007.869 billion yuan in premium income from January to May 2023, with a year-on-year growth rate of 4.06%;
Long-term: The continuous implementation of agent transformation is the core driving force for the growth rate of new business value, and the emergence of AIGC has further promoted the digital transformation of insurance. In the past few years, businesses such as critical illness insurance have been relatively extensive due to the expansion and growth of the scale of agents, so the products only cover people with a high level of awareness of insurance, while the transformation of agents combined with the introduction of artificial intelligence can achieve more efficient interaction with users through a precise marketing model, further meet the user needs of a wider range of customers, and bring about greater efficiency improvements.
In the third quarter of 2023, the company achieved revenue of 1.12 billion yuan, a growth rate of 32.8%, and realized net profit of 44 million yuan, a year-on-year growth rate of 149.05%. We believe that with the active development of the company's related products in various key markets, operating income has steadily increased; on the other hand, the company has increased overall market investment, actively promoted lean management, and implemented measures such as cost reduction and efficiency, and product innovation, thus promoting the gradual restoration of profitability.
Insurance sector: In the context of the gradual shift in the focus of insurance IT development from core business systems to channels and customer service, and with the application of the company's “novel AI” platform in insurance intelligent marketing scenarios, we believe that with its advantages in the three major capabilities of products, customers, and technology in the insurance industry, the company is expected to establish the company's position in insurance channels and customers, thus achieving renewed growth in the insurance industry.
Banking sector: Under macroeconomic pressure, competition in bank IT is fierce. We believe that companies need to further broaden the boundaries of capabilities at the technical level and find new growth points in the banking IT industry.
Enterprise service sector: The company relied on deep technology accumulation and service experience in the insurance field to finally achieve horizontal industry expansion in the enterprise service industry, and the continuous increase in enterprise service customers has further enhanced the company's competitiveness and technical level in the enterprise service industry. We believe that in the future, along with the implementation of the company's large model, knowledge base, and robot capabilities in the enterprise service industry, it will become another growth pole for the company.
Profit forecast and investment recommendations: Xinzhi Software's 2023-2025 revenue is estimated to be 1.73 billion yuan, 2.27 billion yuan, and 2.96 billion yuan, respectively, up 31.9%, 30.8%, and 30.6% year on year. Corresponding EPS is 0.53 yuan, 0.74 yuan, and 1.02 yuan respectively. Net profit is 130 million yuan, 180 million yuan and 240 million yuan respectively, up 341.4%, 41.0% and 37.1% year on year. Referring to comparable companies, Xinzhi Software is expected to have a target market value of 5.64 billion yuan in 2023, corresponding to the target price of 23.6 yuan, covering the “buy” rating for the first time.
Risk warning: risk of excessive labor costs; macro-environmental risk; risk of impairment of goodwill, etc.