Incident: Hang Seng Electronics released its 2023 annual report on the evening of March 24. For the full year of 2023, it achieved operating income of 7.281 billion yuan, an increase of 11.98%; realized net profit to mother of 1,424 billion yuan, an increase of 30.50% year on year; realized deducted non-net profit of 1,448 billion yuan, an increase of 26.51% year on year.
The growth rate slowed in the fourth quarter, due to a decline in the budget execution rate of institutional clients in the second half of the year. According to calculations, in the fourth quarter of '23, the company is expected to achieve operating income of 2,914 billion yuan, an increase of 5.36% over the previous year; achieve net profit of 818 million yuan, a year-on-year decrease of 24.29%; and achieve deducted non-net profit of 911 million yuan, an increase of 11.8% over the previous year.
The execution rate of financial institutions' IT budgets has declined, project management has become stricter, and customer procurement procedures, procurement decision processes, and acceptance processes have been lengthened, which has had a certain impact on the company's revenue growth in the fourth quarter compared to previous years.
Cost control is steady, and human efficiency continues to improve. 1) From a cost perspective, Hang Seng Electronics' 2023 sales/management/R&D expenses grew at -4.3%/+9.5%/+13.4%, respectively. The company maintained a high level of R&D investment while continuing to strengthen cost control in sales and management; 2) From an operating perspective, Hang Seng Electronics' gross margin in 2023 was 74.84%, an increase of 1.28 pct over the previous year, and the degree of commercialization of the business increased. The company's per capita revenue in 2023 reached 548,800 yuan, an increase of 12% over the previous year.
F3.0 full-link Xinchuang adaptation has been implemented, and the large model application ecosystem continues to expand. 1) On the side of Xinchuang: The company's next-generation core trading system UF3.0 signed 2 new strategic customers, and 2 leading brokerage projects were completed, and the memory trading version was launched; the investment transaction system O45 completed full-stack Xinchuang R&D, signed 53 new customers, and completed 24 customers including Huabao Fund, establishing a good start for O45's iterative upgrading in the securities fund insurance industry; all of the company's main products have been adapted to help more than 70 financial institutions achieve independent innovation and upgrading of core systems. 2) In terms of big models: In June 2023, the company released WarrenQ, the next-generation investment and research opening method, Photon, a financial intelligence assistant, and LightGPT, a big model for the financial industry. On October 19, the company released the latest version of LightGPT, a major financial model. The new version improved overall model effectiveness, security compliance, and inference speed by 15%, 13%, and 50% respectively, and made LightGPT-7b open source for financial institutions. Reasoning and training are fully adapted to the Huawei Ascend series.
Investment advice: The company's net profit for 24-26 is estimated to be 17.91, 19.91, and 2,223 billion yuan, respectively, with year-on-year growth rates of 26%/11%/12%, respectively. The current market value corresponds to the 24-26 PE 25/22/20 times, respectively. Considering current capital market reforms and the acceleration of digital investment by financial institutions, the company has room for valuation repair and maintains a “recommended” rating.
Risk warning: The progress of capital market reform falls short of expectations; the progress of new product promotion falls short of expectations; leading party A is increasing its own research efforts.