Matters:
The company announced its 2023 annual report. In 2023, it achieved operating income of 7.281 billion yuan, a year-on-year increase of 11.98%, and realized net profit to mother of 1,424 billion yuan, an increase of 30.50% year-on-year, and EPS of 0.75 yuan. The 2023 profit distribution plan is: It is proposed to distribute 1.3 yuan in cash (tax included) for every 10 shares.
Ping An's point of view:
Revenue growth declined marginally, and results achieved rapid growth in 2023. Revenue of 7.281 billion yuan was achieved in 2023, up 12% year on year (vs. 17% in the first three quarters). In terms of items, the company's Fortune Technology Services achieved revenue of 1,734 billion yuan in 2023, an increase of 4% year on year (vs. 12% in the first three quarters). The slowdown in growth stemmed from the decline in market demand for existing products. Asset management technology services achieved revenue of 1,712 billion yuan in 2023, a year-on-year growth rate of 9% (vs. 8% in the first three quarters), maintaining steady growth. Operational and institutional technology services achieved revenue of 1,436 billion yuan, an increase of 14% over the previous year. The growth was relatively good. To a certain extent, the company's next-generation TA signed nearly 100 new customers and was completed online with leading customers in 2023.
In addition, among the company's various business segments, the fastest revenue growth rate was enterprise finance, insurance core and financial infrastructure technology services, which achieved revenue of 700 million yuan in 2023, a year-on-year growth rate of 23%.
Second, data services, risk and platform technology services achieved revenue of 385 million yuan and 509 million yuan respectively, up 19% and 19% year-on-year respectively, while innovative businesses achieved revenue of 556 million yuan, an increase of 12% over the previous year. On the profit side, the company achieved net profit of 1,424 billion yuan in 2023, an increase of 30.50% over the previous year, and still achieved impressive growth.
In 2023, gross margin increased and expense ratio decreased, driving the company's net profit margin improvement. The company's gross margin in 2023 was 74.84%. Compared with the gross margin level of 73.56% in the same period in 2022, the gross margin of business lines such as Fortune Technology, corporate finance, data, and risk increased significantly year-on-year. The company's expense ratio for the 2023 period was 57.55%, down 1.64 percentage points from the same period last year, mainly due to a 1.38 percentage point year-on-year decrease in the sales expense ratio to 8.11%. The company's R&D investment continued to grow. In 2023, the R&D investment amount (full cost of the company's R&D investment) was 2,661 billion yuan, an increase of 13% over the previous year, and the R&D expenditure rate increased to 36.55%. In this context, the company's net interest rate in 2023 increased 2.78 percentage points to 19.56% compared to 2022.
The company actively promotes the implementation of key products such as UF3.0 and O45, and the Xinchuang adaptation progress remains leading the industry. In 2023, the company actively promoted the implementation of core products and Xinchuang versions. 1) In terms of Fortune Technology, core products such as UF3.0, the company's next-generation core trading system recently ushered in key development nodes. In December 2023, UF3.0 completed full-link Xinchuang adaptation and launch at a leading brokerage firm in Shenzhen. In January 2024, the UF3.0 memory trading system jointly built by the company and Guolian Securities successfully launched the financing and securities lending business. The company's annual report indicates that UF3.0 has signed 2 new strategic customers and completed the completion of 2 leading brokerage projects. 2) In terms of asset management technology, in 2023, O45 completed full-stack Xinchuang R&D, signed 53 new customers, and completed 24 customers, including Huabao Fund. 3) In addition, in response to the diversified needs of the market, in 2023, the company signed nearly 100 new customers of the new generation of TA, signed more than 30 new PB2.0 systems, signed 20 new PB2.0, added more than 50 new databases, 9 enterprise treasury products and 45 ECDS integrated and launched. Order reserves were sufficient. At the same time, the company's Xinchuang progress was high in the industry. In 2023, all of the company's main products have completed the adaptation of Xinchuang to help more than 70 financial institutions innovate and upgrade their core business systems independently. We believe that in the long run, in the context of financial credit innovation entering the deep-water zone and increasing demand-side IT investment, the company is still expected to fully benefit as the IT leader in securities asset management.
Keep up with the pace of big model iteration and deeply cultivate business empowerment in the vertical field. In terms of big models, the company released the intelligent investment and research platform WarrenQ, the financial intelligence assistant Photon, and the financial industry's big model LightGPT in June. In October, the company held the 2023 Hang Seng Financial Technology Conference to announce the latest capability upgrade results and application products of LightGPT, a major financial model, and announced the official opening of public testing. Currently, the number of active users of WarrenQ continues to grow, and the company's big model application products are being co-built with many customers. The company is committed to continuing to invest in the financial industry model ecosystem and promote the innovation and practice of financial models and vertical financial intelligence applications. The forward-looking layout in the AIGC field will help the company seize the business growth opportunities of digital intelligence transformation in the financial industry.
Profit forecast and investment suggestions: According to the company's 2023 annual report, we adjusted the company's profit forecast. The company's net profit for 2024-2026 is estimated to be 1,727 billion yuan (previous value was 1,829 billion yuan), 2.102 billion yuan (previous value was 2.202 billion yuan), and 2,495 billion yuan (new), corresponding EPS was 0.91 yuan, 1.11 yuan, and 1.31 yuan, respectively. The PE corresponding to the closing price on March 25 is 26.3 times, 21.6 times, and 18.2 times, respectively. Thanks to the acceleration of the digital transformation of the domestic financial industry, the company's core business modules such as asset management technology and wealth technology have all shown a rapid growth trend. The main products UF3.0, O45, financial management sales 5, comprehensive financial management 6, TA6, etc. have completed many customer expansion, and continued to maintain a leading position in the market and technology. The subsequent construction of a multi-level capital market, implementation of a comprehensive registration system, and changes in asset allocation will bring strong growth impetus to the company's business, and technological changes such as AIGC will also bring opportunities for the company to restructure its business. We continue to be optimistic that the company will maintain its leading position in the IT field of securities asset management, as well as breakthroughs in business development such as next-generation core trading systems and financial models, and maintain a “highly recommended” rating.
Risk warning: 1) Financial institutions' IT budgets fall short of expectations. Financial institutions' IT investment corresponds to the company's order source. If the customer's IT budget growth is weak, it will drag down the company's performance.
2) The development and popularization of fintech is blocked. Fintech is still a new thing. The technology is still immature, and its application can significantly change the characteristics of financial risk. If the development and popularization of its technology is blocked, it will hinder the company's corresponding business development. 3) Uncertainty in financial regulatory policies. The financial industry is far more affected by regulatory policies than most industries. If financial supervision is too strict, it will limit product and service innovation and corresponding business development, and inhibit corresponding IT business growth on the demand side.