The size of the domestic insurance IT market is expanding, the importance of channel systems is gradually being highlighted, and big data and big models will become important engines. 1) The insurance industry is developing steadily. The original premium revenue for the first three quarters of 2023 was 4.25 trillion yuan, an increase of 10.98% over the previous year; 2) the overall market size of IT solutions in the insurance industry in China is on the rise; 3) the importance of channel systems is highlighted, and technological empowerment of insurance agents will become one of the key investment directions of insurance departments; 4) data capacity building and implementation of large models will become important driving forces for the development of the insurance IT industry.

Xinzhi Software is an IT leader in domestic insurance channels. It has accumulated wealth in terms of customers, data, scenarios, technology, etc., and has sufficient growth momentum in various fields. 1) The company's main business is to provide IT solutions, IT operation and maintenance services, and software project subcontract services to end customers. Among them, end customers are mainly financial institutions such as insurance companies and banks; 2) the customer resources are high-quality and maintain long-term cooperative relationships; 3) the talent team is experienced, has a keen sense of industry changes, and has high R&D investment to build technical barriers to effectively solve customer pain points.

Building an ecological foundation with a new knowledge platform as the core, the AI matrix has been gradually improved, and it has become a pioneer in the commercialization of AI in China. The company's core AI technology is “knowledge base, big models, and robots”. It has created a new and innovative AI platform that can quickly help customers build AI robots based on private data. 1) The company's knowledge base covers various fields such as finance, medical care, government, etc., connects more than 1 million nodes, and has deep technical accumulation in building a knowledge map; 2) There are three main categories of software AI robot products: intelligent cognition, intelligent training, and intelligent marketing. It is rich in functions and easy to deploy, helping enterprises reduce costs and increase efficiency. 3) Diversify and expand AI applications, such as partnering with car companies to explore new retail models of “AI+ cars”.

Investment suggestions: We expect Xinzhi Software's revenue in 2023-2025 to be 17.53, 22.80, and 2,972 billion yuan, respectively, and net profit of 1.21, 1.95 and 298 million yuan respectively. Considering that the company is a leading domestic insurance IT company, the AI business is expected to create a second growth curve, giving 35x PE in 2024, with a target price of 27.6 yuan, coverage for the first time, and a “buy” rating.

Risk warning: Big model technology development falls short of expectations, company AI product promotion falls short of expectations, macroeconomic risks, risk of high concentration of solutions provided by companies to financial institutions.