Key points of investment

Incidents: The company released its quarterly report for '23. In the first three quarters, it achieved revenue of 38.671 billion yuan (+11.44% year-on-year) and loss of 270 million yuan, a sharp decrease in losses over the previous year; it achieved revenue of 11.952 billion yuan (-0.09% year-on-year) and loss of 121 million yuan in the third quarter, a sharp decrease in losses over the previous year.

Comment: In 23Q3, losses were drastically reduced year-on-year in a single quarter, and operating cash flow continued to improve; in the first three quarters, industrial services grew rapidly, and the trend of cloud data business improved. In terms of revenue, in the high-tech industry engineering service business, the company continues to consolidate its dominant position in the industry and continue to serve customers in strategic emerging industries such as high-tech electronics, integrated circuits, biomedicine, new energy, and new infrastructure; in terms of digital and information service business, the company is gradually transforming into a high-tech, product-oriented company, actively reducing the scale of pure integrated business. In terms of cash flow, the company paid more attention to the recovery of sales proceeds, and the net operating cash flow for the third quarter alone improved month-on-month.

Data elements accelerate project expansion, and electronic clouds accelerate the construction of autonomous and controllable computing power. In terms of data elements, the National Bureau of Data was officially listed in Beijing on October 25, which is expected to usher in a new round of policy catalytic implementation; the company's data factorization exploration and practice is already at the forefront of the country, and is currently focusing on developing public data licensing operations. The company has cooperated with data authorities in Hangzhou, Shenzhen and other cities to jointly promote public data licensing and operation practices.

At the same time, the company is also actively studying data asset listing matters for central enterprises. In terms of cloud business, the company has autonomous and controllable state-owned cloud computing infrastructure. China Electronic Cloud is building intelligent computing centers in Wuhan, Harbin, Shijiazhuang, etc., to provide various reliable computing power services to local governments and enterprise groups, further laying the foundation for the company's cloud computing business.

Profit forecast and investment advice: We have adjusted our profit forecast and expect to achieve net profit of 1.67, 2.82 and 443 million yuan in 2023-2025, corresponding to the closing price of PE on November 2, about 125.7, 74.6, and 47.5 times, maintaining the “increased holding” rating.

Risk warning: Competition in the industry is intensifying, product implementation falls short of expectations, and policy adjustment risks.