Incidents:
Hang Seng Electronics released its 2023 annual report. In 2023, the company achieved revenue of 7.281 billion yuan, up 11.98% year on year; net profit to mother of 1,424 billion yuan, up 30.50% year on year; net profit after deducting non-return to mother of 1,448 billion yuan, up 26.51% year on year; gross margin was 74.85%, up 1.29 pct year on year. Looking at a single quarter, the company achieved revenue of 2,914 billion yuan in the fourth quarter, up 5.36% year on year; net profit to mother was 818 million yuan, down 24.29% year on year; net profit after deducting non-return to mother was 911 million yuan, up 11.86% year on year, and gross margin was 79.28%, up 3.08 pct year on year.
The main business is growing steadily
The revenue of the Fortune Technology service business line increased 4.27%, and the growth rate slowed; the revenue of the asset management technology service business line increased by 9.27%, preparing for full batch delivery; the revenue of the operating and institutional technology service business line increased by 14.32%, setting an industry benchmark; the revenue of the risk and platform technology service business line increased 19.06%; the revenue of the data service business line increased 19.27%; revenue from the innovative business line increased by 12.48%; enterprise finance, insurance core and financial infrastructure technology service business line revenue increased by 23.10%.
Key products are becoming more mature
O45 completed the completion of the project of the leading fund and asset management company, making preparations for full batch delivery; UF3.0 completed the pilot launch of the entire Xinchuang transaction link and entered the Xinchuang batch launch stage. At present, all of the company's main products have been adapted to Xinchuang, helping more than 70 financial institutions to independently innovate and upgrade their core business systems. In terms of data intelligence, the company released LightGPT, the financial intelligence assistant Photon, and WarrenQ, an intelligent investment and research platform. Large model application products were co-built with many customers.
Improved operating efficiency is expected to benefit the long-term development of the industry
The company carried out organizational management upgrades to improve efficiency. Against the backdrop of steady revenue growth, the number of employees declined slightly. Per capita income generation and per capita profit generation increased by 13.32%/32.19% year on year, respectively, and the sales expenses ratio and management expenses ratio decreased by 1.38 pct/0.29 pct year on year, respectively. The Central Financial Work Conference proposed the goal of speeding up the construction of a financial power. The China Securities Association clearly proposed the investment goals of information technology in the securities industry. Accelerated implementation of Xinchuang and the empowerment of AI models may drive the long-term development of the fintech industry.
Profit Forecasts, Valuations, and Ratings
We expect the company's 2024-2026 revenue to be 81.78/91.81/10.281 billion yuan, respectively, with year-on-year growth rates of 12.31%/12.27%/11.98%, net profit to mother of 17.40/20.19/2.304 billion yuan respectively, year-on-year growth rates of 22.14%/16.05%/14.13%, EPS of 0.92/1.06/1.21 yuan/share, respectively, and a 3-year CAGR of 17.39%. Since the company is a leading domestic fintech product and service provider, it is expected to benefit from batch delivery of products. Referring to comparable company valuations, we gave the company 35 times PE in 2024, with a target price of 32.05 yuan, maintaining a “buy” rating.
Risk warning: The progress of new product upgrades falls short of expectations; downstream customer IT expenses fall short of expectations; market competition increases risks, etc.