The company's profit is stable and dividends are high. In 2023, we achieved revenue of approximately RMB 7.891 billion, up 2.0% year on year. Among them, revenue from the three new businesses increased 12.7% year on year, accounting for 36.7% of revenue, an increase of 3.4 percentage points over last year. The three new businesses are still the main driving force for the growth of the company's business scale. By business line, BSS business revenue in 2023 was about RMB 4.881 billion, down 0.9% year on year (2022:63.6%); digital intelligence business achieved revenue of about RMB 1.02 billion in 2023, down 4.2% year on year; vertical industry digital business achieved revenue of about 965 million yuan in 2023, up 27.5% year on year; OSS business achieved revenue of about RMB 832 million in 2023, up 24.9% year on year.
In 2023, the company's overall gross margin was 37.7%, a slight decrease of 0.3% from last year. Sales, administration, and R&D expenses accounted for 7.9% of revenue (2022:7.7%), 4.1% (2022:4.5%), and 13.9% (2022:14.3%), respectively. The company achieved net profit of about RMB 512 million for the full year of 2023, a year-on-year decrease of 37.9%, and a net profit margin of 6.5% (2022:10.7%). The decline in net profit was mainly affected by non-operating projects (impairment of goodwill and intangible assets resulting from the acquisition of iResearch). The adjusted net profit was approximately RMB 851 million, and the adjusted net interest rate was 10.8%, which is slightly higher than in 2022.
The company decided to recommend a 2023 dividend of HK$0.412 per share at the shareholders' meeting. The dividend ratio is equivalent to 40.0% of the annual profit after excluding the impact of non-operating projects. The total special dividend for December 2023 was HK$0.6 per share, and the company's total dividend for 2023 was HK$1.012 per share.
The digital intelligence operation business was under pressure in the short term, and the vertical and OSS businesses continued to grow steadily.
In 2023, the company's digital intelligence operation business was under short-term pressure due to the decline in TMT industry prosperity and internal restructuring, including the reduction in IPO projects and cost reduction and efficiency of Internet companies. Also, the pain of market expansion brought about by organizational restructuring after the acquisition of iResearch Consulting. We believe this business line is expected to resume growth starting in 2024 as the economic environment continues to improve and the company's internal restructuring comes to an end. In particular, the company's DSaaS business continues to penetrate the fields of digital intelligence, government and enterprise, vehicle networking, consumer and finance, etc., accounting for 24.0% of revenue according to results and split payment models in 2023.
The company continued to maintain high-quality growth in terms of vertical digitalization, especially in the energy and transportation sectors, with revenue growth rates of 136.5% and 458.5%, respectively. In terms of energy, the company is expanding into fields such as wind power, photovoltaics, and mining while consolidating its leading position in the 5G private network for nuclear power. At present, it has covered 23 nuclear power units (coverage rate close to 30%), more than 100 wind farms (coverage rate of about 10%), and connected to more than 400 photovoltaic stations (coverage rate of about 10%). In terms of transportation, the company is deeply involved in fields such as smart highways, smart hubs, and digital logistics. In the field of intelligent highways, the business covers more than ten provinces and cities across the country. In the field of smart hubs, the largest high-speed rail smart hub in the southwest, the Chongqing East Railway Station smart hub project, was successfully promoted. The project contract amount exceeded RMB 600 million. In the field of digital logistics, by integrating multiple logistics data sources such as railways, highways, aviation, and water transportation, data element circulation is realized, and services such as freight data, logistics visualization, and multimodal transport optimization are provided to customers.
The company's OSS business continues to grow rapidly. In 2023, the company will continue to provide OSS overall solutions for the four major operators, including self-intelligent networks, computing power networks, 5G private networks, and digital intelligent network operation. Domestic telecom operators are increasing the development and application of new technologies such as computing power networks, computing network brains, and large models. The company has further iteratively upgraded OSS products to ensure the leading position of the products in the market.
BSS business. On the one hand, communication industry customers are reducing costs and increasing their self-research efforts to hinder the growth of BSS business; on the other hand, with the development of AIGC/GPT technology, customers are paying more attention to using AI technology to restructure traditional BSS application systems. The positive and negative balance, and the BSS business declined slightly. The company has long established a presence in the fields of edge intelligence, metaverse, digital twins, and databases, and continues to provide intelligent services using an AI toolset to ease the downward pressure on the BSS business. We believe that the company's BSS business will maintain a steady, moderate, and slight decline for some time to come.
The company's industry-specific XGPT large model has been implemented in practice. The company combined the general-purpose models on the market and released industry-specific models, which mainly serve the communications, energy and transportation industries. Currently, there are more than 60 orders, and implementation projects have already been implemented. Taken together, the company has three major product systems: cloud network, digital intelligence, and IT. Among them, cloud network integration products remain leading the world, digital intelligence products are leading domestically, and IT products are in the first camp in China.
Four new changes. On the basis of advancing the “one consolidation, three development” business strategy, the company further emphasizes the four new transformations of “communication+non-communication”, “service+product”, “software and hardware integration”, and “domestic+international development” to drive continuous high-quality growth. Among them, integrated software and hardware products are standardized products, which can effectively increase the company's future gross profit margin, and are one of the main products for overseas expansion.
CICA Security has become a major shareholder of ASIX Technology, which has had a positive impact on the company's development. The first is business synergy. As digital intelligent operations and data elements develop, security is the foundation and is particularly important. ASIX Technology and ASIC Security can form a complete solution from security to business in digital projects, such as pioneering integration of East Digital and Western Computing Hub Nodes and DSaaS data security governance. Second, at the level of strategic execution, CICA Security becoming a controlling shareholder will improve the efficiency of the company's strategic decisions and execution, and will have a positive effect on decision-making capabilities.
Valuation recommendations: We estimate that the company's revenue for 2024-2026 will be 83.27 (-5.6%)/90.32 (-8.6%)/RMB 10.071 billion, respectively. Net profit was 8.95 (-11.2%) /9.78 (-15.3%)/RMB 1,096 billion, respectively, with net profit CAGR of 35.5% for the period 2023-2025. We use the method of valuing each business line separately and then adding it up. Among them, the BSS business uses the PE valuation method, and the other business lines use the PS valuation method.
As a traditional telecom business, we gave BSS business 4 times PE (originally 5 times, PEG 0.11, China Telecom Hong Kong stock PEG 0.86); DSaaS (i.e. iResearch Digital Intelligence) business, 2 times PS in 2023 (unadjusted); 3 times PS in 2023 (originally 4 times) in vertical industry and enterprise cloud (MSP) business; and 4 times PS in 2023 (originally 5 times) in terms of OSS business. When the four business lines are combined, the target market value is RMB 13.654 (-5.6%) billion, and the target price is RMB 14.6 per share, corresponding to HK$15.86 (-6.1%) per share.
(RMB to HKD exchange rate: 0.9202), maintaining the “better than the market” rating.
Risk warning: The basic market of the company's BSS business declined rapidly, affecting annual revenue and profit levels; the revenue growth rate of the three new businesses fell short of expectations, affecting the valuation level of the company's related business areas, etc.