The financial cloud business is growing rapidly, and profitability continues to be unleashed. In 2023, the company achieved revenue of about 2,681 billion yuan, up 31% year on year; of these, MaaS business revenue was about 891 million yuan, up 17% year on year, and the number of core customers reached 213, up 14% year on year; BaaS business revenue was about 1,790 million yuan, up 38% year on year. BaaS's financial cloud revenue was about 1,185 billion yuan, up 59% year on year, and the asset transaction scale reached about 53.130 billion yuan, up 93% year on year; BaaS's insurance cloud revenue was about 605 million yuan, up 10% year on year, and the premium scale was 1,953 million yuan, up 72% year on year, and the renewal scale was 1,378 billion yuan, up 38% year on year.

In 2023, the company's sales expense ratio, management expense ratio, and R&D expense ratio were 40.0%, 9.7%, and 14.1%, respectively. The increase in sales expenses is related to the company's development of new markets and new customers. The decline in the management cost rate and R&D cost rate, in addition to the company's management measures to reduce costs and increase efficiency, is also related to the company's internal adoption of AI tools, including copilot assistants and AI BR-coders.

In 2023, the company's gross margin was 72.91%, which continued to maintain a high gross margin level. Net profit increased by 46.2% to reach 335 million yuan, and the net profit margin was 12.51%.

The core logic of the MaaS business and the development potential of the BaaS business. In 2023, the company's MaaS product line was the cornerstone business, growing steadily. While the number of core customers grew, the average revenue also increased slightly by 2.9% to RMB 3.495 million. The company's top 50 customers basically contributed more than 10 million in revenue, so it can be seen that there is still a lot of room for improvement. The MaaS business line is based on a scoring model and covers pre-loan, and post-loan scoring functions in the non-financial sector. There are many modules for various functional scenarios (including business scenarios such as anti-fraud, capital requirements, marketing intentions, qualification certification, etc.), and the average number of daily inquiries has exceeded 300 million. Increased call volume and multi-customer call coverage through a single customer module is the core logic for the continuous growth of the MaaS business.

The BaaS business is the core driving force for the company's rapid growth. In particular, the financial cloud obtains commission income by delivering KPIs, which has led to a significant increase in the scale of asset transactions, which reflects the market verification of this business expansion logic. The company relies on a vertical marketing system with accurate user portraits (MaaS based) +voice GPT robots to continuously increase the scale of transaction promotion by revitalizing stock and obtaining incremental amounts. Currently, the BaaS platform supports more than 30 million daily intelligent voice communication, and can smoothly conduct more than 20 rounds of conversation, imitating real sounds. The response time is less than 500 ms, and the semantic understanding accuracy rate is greater than 95%. Due to the huge scale of domestic credit and wealth management, the BaaS business has a lot of room for improvement in the future.

A full-stack technology system for large vertical models. The company has completed the construction of full-stack technology for large vertical models, and has built a distributed training and inference framework, covering everything from pre-training, fine-tuning, and alignment of large models to deployment engineering optimization, which greatly reduces the training, iteration and inference costs of generative models. The company's self-developed BR-coder increased the penetration rate of automatically generated code to 10%, Orca-AutoML automatic learning assisted data analysis positions shortened the modeling time by 30%. Employees in various positions collaborated with the machine Copilot assistant to further explore the use of the large model intelligent agent application development platform in various positions such as customer service, manpower, finance, operation, and development, and established a new xDynamics department. It is exploring the application of next-generation cutting-edge AI technology to promote more application scenarios and businesses landing. For example, AvatarGPT developed by this department is a new digital human interaction all-in-one computer that can answer users' concerns within one second and provide customers with a new way of human-computer interaction.

The company is an outstanding manufacturer that has implemented generative AI applications and has strong AI monetization capabilities. It is a leading enterprise in the industry and has achieved large-scale profits. We continue to be optimistic about the company's future development.

Investment advice: We forecast that the company's revenue for 2024-2026 will be 30.55 (-7.5%)/36.10 (-10.4%)/RMB 4.289 billion, with net profit attributable to mother of 3.77 (-13.9%) /4.45 (-15.7%)/RMB 526 million, respectively, and net profit CAGR for the period 2022 to 2025 of 23%. The reasons for the reduction in revenue and net profit expectations are:

Affected by macroeconomics, in the second half of '23, especially in the fourth quarter, the company's performance showed a slowing trend compared to the first half of the year, while in the first quarter of '24, there were signs of a further slowdown. As a result, we lowered our previous revenue and profit growth expectations.

However, after the reduction, gross margin was still above 72%, and the net profit margin was still above 12%. Taking into account factors such as revenue size, gross margin level, net profit growth rate expectations, net profit growth rate level, industry position, and the 2024 economic environment, we gave the company 25 times PE in 2024 (originally 35 times in 2023), then the target market value was RMB 9.416 billion, and the target price was RMB 19.21 per share, corresponding to HK$20.82 per share (-15.0%), maintaining the “superior to the market” rating.

Risk warning: The standardization of the company's big data management and use; the risk that unexpected events caused by data security will affect the company's reputation; the risk that the company's revenue and net profit will fall short of expectations due to competition from other fintech companies; changes in the dependence of bank customers on external procurement services, causing the company to lose major customers, which in turn affects the company's performance.