Incident: Hang Seng Electronics released its 2023 annual report. The company achieved revenue of 7.281 billion yuan, up 11.98% year on year; realized net profit of 1,424 billion yuan, up 30.50% year on year; realized deducted non-net profit of 1,448 billion yuan, up 26.55% year on year; achieved net operating cash flow of 1,261 billion yuan, up 10.82% year on year; and the company's gross margin reached 74.84%, up 1.28 percentage points year on year. Looking at 2023Q4 alone, the company achieved revenue of 2,914 billion yuan, a year-on-year increase of 5.36%; realized net profit of 818 million yuan, a year-on-year decrease of 24.29%; and realized deducted non-net profit of 911 million yuan.
The major lines performed well, and the core business progressed smoothly. In 2023, by product line:
(1) Fortune Technology Services achieved revenue of 1,734 billion yuan, a year-on-year increase of 4.27%. The growth rate was slower than the same period last year, mainly due to a slowdown in market demand for existing products, insufficient release of demand for credit and innovation products, and increased competition. In terms of business progress, UF3.0, the core product of the brokerage business, was completed in 2 leading brokerage brokerage projects, completed the pilot launch of the full chain of transactional credit innovation in Shenzhen, and signed 2 new strategic customers. In terms of wealth management business, family trusts and asset allocation systems are growing rapidly, and financial management 5 projects, insurance agency sales system projects, and CRM5 projects for key customers have been completed. (2) Asset management technology services achieved revenue of 1,712 billion yuan, an increase of 9.27% over the previous year, with a steady growth rate. In terms of business progress, O45, the core asset management product, has completed full-stack Xinchuang R&D, signed 53 new customers, and completed the completion of 24 customers including Huabao Fund. The company is ready for full batch delivery. Fusion China successfully signed contracts with a number of benchmark customers and completed the leading bank financial management customer project. (3) Operation and institutional technology services achieved revenue of 1,436 billion yuan, an increase of 14.32% over the previous year. Among them, the new generation TA signed nearly 100 new customers, 18 Internet TA companies launched, and the new generation valuation system signed more than 30 customers. In the field of institutional service business, PB2.0 signed 20 new customers, and PB Xinchuang went online and completed construction at leading brokerage firms. In addition to the above three business segments, the company achieved revenue of 5.09/3.85/5.56/700 billion yuan in risk and platform technology services/data service business/innovation business/enterprise finance, insurance core and financial infrastructure technology services, respectively, with year-on-year growth of 19.06%/19.27%/12.48%/23.10%, respectively.
Continued refined operations, and revenue growth is faster than overall expenses. In 2023, the company continued to carry out refined operation management to improve revenue quality, and the overall revenue growth rate was faster than the cost growth rate. In 2023, the company's sales expenses, management expenses, and R&D expenses were 5.90/953/2,661 billion yuan respectively, with year-on-year changes of -4.33%/+5.93%/+13.42%, respectively. The sum of the three fees was 4.204 billion yuan, an increase of about 9.68% over 2022. The overall cost growth rate was slower than the revenue growth rate. In terms of the number of employees, as of the end of 2023, the total number of people in the company was 13,189, a decrease of 158 from the same period last year. Among them, there are 9535 product technicians, accounting for 72.3% of the total number of people in the company. We believe that in the context of overall fee control and fine management, the company still maintains a high R&D investment and a high proportion of technical personnel to provide impetus for the company's technological innovation and research, and the company's product competitiveness is expected to remain leading.
Pay attention to the development of digital finance, and achieve independent innovation and upgrading of core systems. In terms of artificial intelligence, in 2023, the company released a number of new financial products based on Big Prophecy Model technology, including WarrenQ, an integrated investment and research tool platform, Photon, a financial intelligence assistant, and LightGPT, a major model specialized in the financial industry. At present, all of the above AI products have been officially open for public testing, and large model application products are being co-built with many customers. In terms of Xinchuang, all of the company's main products have been adapted to Xinchuang, and helped more than 70 financial institutions to independently innovate and upgrade their core business systems.
Profit forecast and investment rating: The company is a leading domestic financial IT manufacturer. In the 2023 IDCFintech list, the company ranked 22nd in the world and number one in Asia. We expect EPS to be 0.93/1.06/1.23 yuan in 2024-2026, and the corresponding PE is 25.79/22.53/19.40 times.
Maintain a “buy” rating.
Risk warning: Emerging technologies such as artificial intelligence have fallen short of expectations, financial institutions' IT investment falls short of expectations, and market competition has intensified.