Bank IT leaders are expected to benefit from the recovery of Xinchuang in '24

The company mainly provides full-stack IT solutions for financial customers in the banking industry, etc., and its products cover core business systems, credit card business systems, and business center systems. We believe that after more than 20 years of development, the company has accumulated a large amount of high-quality customer resources, and is expected to benefit from the recovery of the innovation industry in 24 years with customer service experience. Furthermore, on the basis of deep cultivation in the domestic financial IT market, the company is also actively developing overseas business, which is expected to open up room for growth. We expect the company's net profit for 23-25 to be 0.53, 0.74, and 108 million yuan (previous value of 1.99 and 272 million yuan), with comparable companies averaging 24E3.3 x PS (Wind). Considering the good cooperation between the company and core banks, it is expected to benefit from financial information and innovation, giving the company 24E 3.6x PS, corresponding to the target price of 12.41 yuan (previous value of 14.95 yuan), “buy”.

The core business of financial IT is expected to benefit from the recovery of Xinchuang in '24

We believe that with the gradual recovery of the macroeconomic economy, demand for innovation is expected to gradually recover in 2024. Consider: 1) The company has accumulated deep customer resources. As of June 2023, the company has cooperated with 3 policy banks, 6 large state-owned commercial banks, and all national joint stock banks, with a customer coverage rate of over 96% of banks with assets over 500 billion dollars. 2) New orders begin to resume. The amount of sales contracts signed by 23H1 Company also increased by 27%, including a 40% increase for digital financial business solutions and a 15% increase for big data application system solutions. We believe that the company is expected to benefit from a recovery in industry demand, and that core businesses such as digital finance are expected to experience high revenue growth in 2014.

Overseas expansion is expected to open up broad market space

As the first Chinese company to successfully implement a core banking system in a major bank in Southeast Asia, the company currently has 60+ customers in Southeast Asian countries such as Malaysia, Thailand, and Indonesia, focusing on core banks, digital banks, foreign exchange, big data, and financial solutions, and has formed many successful cases. Specifically, the company focuses on key Southeast Asian markets such as Malaysia, Thailand, and Indonesia, with Icore products as its main products; in the Hong Kong region, the company maintains the steady progress of FXCore products; and accelerates the development progress of Mcore products, which is expected to become a major growth point for overseas business in the next 2-3 years. We believe that with strong self-research capabilities and domestic customer service experience, the company is gradually developing business in overseas markets, which is expected to further open up room for growth.

The equity incentive plan highlights the company's confidence in development

On September 12, 2023, the company issued the “2023 Stock Options and Restricted Stock Incentive Plan (Draft)”, which intends to grant 1.04 million shares/10,000 share rights to 532 incentive recipients who meet the grant conditions, accounting for 1.37% of the total share capital at the time of announcement. The exercise price of stock options is 10.68 yuan per share, and the restricted stock grant price is 5.34 yuan/share. Furthermore, according to the incentive assessment target, using 2022 as a base, the target value of the company's 23/24 revenue and net profit year-on-year growth rate is 10%/20% (revenue/net profit can meet either). We believe that the equity incentive plan will help motivate the core team and fully demonstrate confidence in the company's future development.

Risk warning: ICT demand falls short of expectations, and labor costs are rising.