Gross margin improved in mid-2023, revenue improved steadily: In mid-2023, the company achieved revenue of 8.5 billion yuan, a year-on-year decrease of 16%; of this, cloud intelligence business revenue was 3.3 billion yuan, up 3% year on year, mainly due to Huawei's expansion in emerging businesses such as cloud, vehicles, and Hongmeng; Cornerstone business revenue was 5.1 billion yuan, down 24% year on year, mainly due to reduced demand from major industry customers and the company's strategic shift to development of high-value projects; gross profit of 2 billion yuan, gross margin fell 1.1% to 23.7% year on year, net profit of 351 million yuan, year-on-year decrease of 351 million yuan, year-on-year decrease of net profit of 351 million yuan, year-on-year decline 38.6%, up 86.8% month on month. While ensuring the steady development competitiveness of Hongmeng's business and the automotive sector, the company's gross margin began to gradually improve.

The cornerstone business continues to be under pressure, and software factories are actively storing energy: The company's business continues to be under pressure, mainly due to the contraction of major customer business in a macro environment. In the first half of '23, the cornerstone business achieved revenue of 5.1 billion yuan, a year-on-year decrease of 24%. During the reporting period, the number of customers contributing more than 6 million yuan in revenue fell from 190 to 171; the concentration of major customers continued to decline year on year. It is worth mentioning that while the company has reached long-term stable cooperative relationships with core customers such as Huawei, Baidu, Ali, and China Construction Bank, it continues to deeply cultivate central state-owned enterprise customers such as China Mobile, China Telecom, Sinopec, and CNOOC. We expect the company's cornerstone business to maintain a growth rate of around 12% over the next few years.

The cloud intelligence business is developing rapidly, and the automotive sector is poised to go: The cloud intelligence business revenue for the first half of '23 was 3.3 billion yuan, an increase of 3% over the previous year, mainly due to the increase in the service capacity of the full-stack cloud business. The company became one of the first service partners to pass HUAWEI CLOUD CTSP certification, and continues to rank first in the two major segments of cloud migration and cloud development according to IDC statistics. It will continue to grow in the field of cloud professional services in the future. At the same time, the company is deeply involved in various Huawei car building businesses, and has provided software architecture and smart cockpit technical services for many leading car companies such as BYD, Geely, and Volvo. We believe that the company continues to optimize vertically in the Hongmeng Matrix. The company is tied to a 10% share of HUAWEI CLOUD's capabilities, and HUAWEI CLOUD's revenue will reach 45.3 billion in 2022. The company is expected to continue to benefit in the future, while the layout of the smart car software industry chain will open up a new growth curve for the company's growth.

Adjust the target price to HK$8.1 to maintain the buying rating: comprehensive analysis, China Soft International's flow is steady, and the company's R&D capabilities continue to strengthen. We are optimistic about the company's influence and layout in the cloud's intelligent business. With the support of Huawei's many business cooperation lines and major customers, the cornerstone business is expected to continue to gain strength steadily; the certainty of the rapid development of the cloud intelligence business and car salesmen. Considering the impact of the pressure on gross margin, we adjusted the valuation center to 18 times PE. Based on the profit forecast for 2023, the target price is HK$8.1, which has room for an increase of 33.9% from the previous closing price, maintaining the buying rating.