Key points of investment

Incident: On January 31, the company released its 2023 annual results forecast. It is expected to achieve revenue of 23.85-2,612 billion yuan for the full year of 2023, an increase of 5%-15%; achieve net profit due to mother of 220,000-300 million yuan, an increase of 4.22%-20.26%; and achieve net profit without deduction of 226-266 million yuan, an increase of 0.59%-18.39% year on year.

Among them, Q4 achieved revenue of 703-930 million yuan, an increase of 16%-54% over the previous year, and realized net profit of 132-172 million yuan, an increase of 36%-77% over the previous year.

The layout of the intelligent manufacturing sector is compounded by market breakthroughs of central and state-owned enterprises, and the company's revenue growth rate will continue to rise. Since 2023, although the overall boom in the downstream manufacturing industry has been low, the company's annual revenue has maintained steady growth, and the company's revenue growth rate in the fourth quarter increased to a certain extent compared to the previous three quarters. It is expected that in 2024, with the continuous implementation of the company's business layout, including in the field of intelligent manufacturing, the company will continue to consolidate its dominant position in advantageous industries, continue to expand customers in high-prosperity industries, and strengthen the layout of the central state-owned enterprise market in the general ERP field, and the revenue growth rate in 24 years is expected to increase further. On the profit side, the company reduced costs and increased efficiency through AI and other methods, effectively improving R&D efficiency and shortening the R&D cycle, thereby driving the company's performance to achieve high-quality growth. At the same time, the company's net profit growth rate in the fourth quarter increased significantly compared to the previous three quarters.

The acquisition of Snobo, which targets customers of large central enterprises and group enterprises, focuses on boosting the central state-owned enterprise market. Previously, 90% of the company's customers were private enterprises. Starting in 2023, the company focused on developing the central state-owned enterprise market, set up a special group of central state-owned enterprises, and obtained customers such as Hangzhou Steam Turbine Factory and XCMG Group. The company has also strengthened its layout in the central state-owned enterprise market through the acquisition of Snoop. It has a nationwide marketing network and local technical service system, mainly for large central enterprises and group enterprises, providing software product solutions and related digital consulting services in the field of the digital supply chain. Its main customers include China Mobile and its subsidiaries, and China Satellite Network Group.

With the company's continued strong investment, the central state-owned enterprise market is expected to become an important growth point for the company in 2024.

Embracing Huawei's MetaERP domestic ecosystem, the pan-ERP business is expected to gain new momentum for growth. By the end of 2023, MetaERP had covered 100% of Huawei's business scenarios, and more than 200 of Huawei's subsidiaries and the $600 billion global business had all successfully switched to MetaERP. With the commercialization of MetaERP, it is expected to replace products from manufacturers such as SAP and Oracle in the high-end ERP market in the future. As the core partner of Huawei MetaERP, the company is deeply tied to Huawei, and has many years of experience in implementing SAP and Oracle ERP, which can efficiently replace high-end ERP systems. At the same time, the company has also undertaken the implementation of Huawei ERP for a long time, and has accumulated rich implementation experience and technical reserves. We believe that as the commercialization of Huawei MetaERP approaches, the company will be the first to benefit, and the pan-ERP business is expected to gain new momentum for growth.

Investment advice: As a leader in discrete industrial software, the company will fully benefit from the recovery in customer demand in the downstream manufacturing industry. At the same time, starting in 2023, the company will focus on the central state-owned enterprise market, which is expected to bring new growth in performance. The company is expected to achieve revenue of 25.44/32.40/4.03 billion yuan respectively in 2023-2025, and achieve net profit of 2.63/3.47/452 billion yuan, which is covered for the first time, giving it an “increase in holdings” rating.

Risk warning: downstream demand falls short of expectations; industry competition intensifies; market expansion of central state-owned enterprises falls short of expectations; MetaERP's progress falls short of expectations.