Investment event: On October 26, the company released its report for the third quarter of 2023. In the first three quarters of 2023, the company achieved operating income of 3,921 billion yuan, a year-on-year increase of 0.74%; net profit of 370 million yuan, a year-on-year increase of 21.34%; net profit after deducting non-return net profit of 360 million yuan, an increase of 22.70% year-on-year.
The company's software business is rising steadily, and the growth rate on the profit side is stable. In the first three quarters of 2023, the company achieved revenue of 3,921 billion yuan, a year-on-year increase of 0.74%. Among them, software businesses such as software products, software development and services achieved revenue of 3.345 billion yuan, an increase of 1.96% over the previous year; the system integration business achieved revenue of 565 million yuan, a year-on-year decrease of 5.86%. The main reason for the decline in system integration business revenue was affected by the cyclical execution and acceptance of large-scale system integration projects. As of the end of September 2023, the total contract amount for the company's uncompleted system integration projects exceeded 2 billion yuan. Looking at the third quarter alone, the company's net profit was 161 million yuan, an increase of 12.93% over the previous year. It is worth mentioning here that since this year's R&D expenses plus deduction policy began to be implemented in Q2 (last year in Q3), this factor affected the pace of the company's growth rate to a certain extent. Looking at total profit, the company achieved total profit of 370 million yuan in the first three quarters, an increase of 23.01% over the previous year; in Q3 alone, the total profit was 159 million yuan, an increase of 31.25% over the previous year.
Gross margin increased significantly, and cash flow improved year over year. In the first three quarters of 2023, the company's gross margin reached 34.27%, an increase of 2.41% over the same period last year; in the third quarter alone, the company's gross margin reached 35.93%, an increase of 4.22% over the same period last year. We believe that the main reason for the year-on-year increase in the company's internal efficiency and the company's focus on high-quality projects is the combined impact of factors such as the company's internal efficiency improvement and the company's focus on high-quality projects. In the first three quarters of 2023, the company received 3,631 billion yuan in cash from the sale of goods and services, an increase of 19.08% over the previous year. The net cash flow from the company's operating activities was -1,095 billion yuan, an increase of 3 billion yuan over the same period last year.
At 1.9 billion yuan, the cash flow situation has further improved.
Continuous and efficient research and development, and deployment of advanced technology in the industry. In the first three quarters of 2023, the company continued to increase investment in R&D. The company invested a total of 702 million yuan in R&D expenses, an increase of 6.92% over the same period last year. Through the establishment of a multi-level R&D system of the company's technical committee, business group R&D platform, and division R&D team, the company takes into account the forward-looking nature of R&D investment for advanced technology in the industry and the practicality of addressing customer needs and pain points. The company's R&D focus covers important directions such as vertical AIGC applications, industry reference model platforms, “insurance+” ecosystem platforms, and data governance and analysis applications.
Investment suggestions: We forecast that the company's revenue for 2023-2025 will be 74.36/83.36/9.425 billion yuan, respectively, and net profit of 8.07/9.65/1,135 billion yuan respectively, corresponding to PE, 23/19/16 times, maintaining the “buy” rating.
Risk warning events: business development falls short of expectations, slow policy progress, etc.