Investment logic:

Xindian Software is a leading enterprise in government and enterprise informatization in China. Its business covers the three core areas of smart recruitment, smart government, and digital construction. The company's largest shareholder is Jiangsu Cathay Pacific International Trade Co., Ltd., which is indirectly wholly-owned by the Zhangjiagang State-owned Assets Management Center. The state-owned assets background and nationwide marketing network help the company reach more customer resources.

In 2023, due to financial constraints from downstream customers and a decrease in the number of tenders opened on the platform, the annual revenue is expected to be 2.44 billion yuan, a year-on-year decrease of 13.5%, and a net profit of 190 million yuan, a year-on-year decrease of 66.6%. It is expected that as electronic procurement continues to advance and the data element policy is gradually implemented, the company's revenue and profit are expected to gradually pick up from 2024.

The company's revenue volume in the field of smart recruitment is much higher than that of listed companies in the same industry, and it is actively exploring operating businesses. Since 2009, the country has issued a series of policies to encourage the electronic procurement process. Currently, electronic procurement platforms across the country and major cities have basically been built, but the penetration rate of functional modules such as unmet bid opening and remote remote bid evaluation still needs to be improved. The company has been deeply involved in the electronic procurement business for 20 years, and can provide smart procurement platforms and innovative functional modules for the government and large central enterprises. It has served more than 200 cities and more than 1,000 counties and districts across the country. Based on the experience of building a recruitment platform, the company provides a “new electronic trading platform” for bidders and charges platform service fees, and provides bidders with tools and software such as the Biazhengtong App, and the share of operating business revenue continues to increase. We forecast the revenue of the company's smart procurement business to be 1.08/1.24 billion yuan in 24/25.

The company has rich construction experience in the fields of digital government “three networks” and government data governance, and has participated in nearly 1,500 smart government projects and 13 provincial government big data projects. Facing market opportunities such as data asset registration, the company has launched solutions such as public data scenario operation and comprehensive application of grass-roots data, and has implemented project applications, and is expected to continue to benefit from the promotion of data element policies. In addition, the company has a high degree of commercialization in the field of digital construction. The construction industry GDP increased 6.1% year on year in 2023, and the company is expected to benefit from a recovery in industry demand.

Profit forecasts, valuations, and ratings

We expect that in 2023-2025, the company will achieve operating income of 24.4/26.7/3.04 billion yuan, a year-on-year increase of -13.5%/9.4%/13.8%; net profit to mother of 1.9/2.9/3.9 billion yuan, an increase of -66.6%/53.6%/32.8%, corresponding EPS of 0.58/0.89/1.18 yuan. We used the price-earnings ratio method to value the company. We selected 3 comparable companies with downstream customers, mainly government and large central enterprises, and gave the company a PE valuation of 36 times in 2024, with a target price of 32.05 yuan/share. For the first time, we covered the company and gave it a “buy” rating.

Risk warning

Government clients' investment in informatization falls short of expectations, operating business growth falls short of expectations, market competition intensifies, and the risk of high accounts receivable and inventory.