Incident: On March 24, 2024, the company released its 2023 annual report, achieving operating income of 7.281 billion yuan, an increase of 11.98%; realized net profit of 1,424 billion yuan, an increase of 30.50% year on year; realized net profit deducted from non-return to mother of 1,448 billion yuan, an increase of 26.51% year on year. The results were in line with expectations.
Revenue continued to rise in 2023, and the leading IT advantage in the capital market was significant. 1) In 2023, the company continued the trend of revenue growth higher than the growth rate of costs and expenses, and the quality of development was further improved. The company achieved operating income of 7.281 billion yuan, an increase of 11.98% over the previous year; gross margin of the main business was 74.85%, up from the past two years; realized net profit of 1,424 billion yuan, an increase of 30.50% over the previous year; and realized net profit deducted from non-return to mother of 1,448 billion yuan, an increase of 26.51% over the previous year. 2) The company's various businesses continued to grow in 2023. According to the new statistical caliber, the Fortune Technology service business achieved revenue of 1,734 billion yuan, an increase of 4.27%; the asset management technology service business achieved revenue of 1,712 billion yuan, an increase of 9.27%; the operation and institutional technology business achieved revenue of 1,436 million yuan, an increase of 14.32%; the risk and platform technology service business achieved revenue of 509 million yuan, an increase of 19.06% year on year; innovation The business achieved revenue of 556 million yuan, an increase of 12.48% over the previous year; the enterprise finance, insurance core and financial infrastructure technology service business achieved revenue of 700 million yuan, an increase of 23.10% over the previous year.
Continue to increase investment in R&D to build the competitiveness of core products. 1) In 2023, the company was at the leading level in the industry in terms of the number of product technicians and R&D expenses. The company invested a total of 2,661 billion yuan in R&D expenses, accounting for 36.55% of revenue; the number of product technicians was 9535, accounting for 72.3% of the total number of people in the company. 2) Based on strong R&D strength, Hang Seng has the following leading technical advantages: ① distributed low latency platforms, which achieve industry-leading performance such as single latency and concurrent throughput in transaction processing scenarios; ② agile business delivery platforms, based on low code capabilities, to help customers innovate quickly; ③ high-performance data weaving platforms, which achieve risk control and settlement in data processing scenarios to help customers reduce costs and increase efficiency; ④ large model technology has been applied in technology platforms and related fields to improve efficiency.
Financial institutions continue to increase investment in technology, and there is great potential for asset management IT+ credit innovation. 1) The overall revenue of securities, funds and other industries grew in 2023; the digital transformation of financial institutions continued to deepen. The China Securities Association issued the “Three-Year Plan to Improve the Network and Information Security of Securities Companies (2023-2025)”, which clearly states that the average investment amount in information technology in the securities industry in the next three years should be no less than 10% of the average net profit or 7% of the average operating income in 2023-2025; the implementation of major policies such as the full implementation of registration systems and the acceleration of Xinchuang in the capital market have all provided positive conditions for financial institutions to increase investment in technology. 2) In recent years, China's asset management industry has ushered in great development. According to Wind data, by the end of 2023, the total scale of China's asset management business reached 67.06 trillion yuan, an increase of 0.5% over the previous year.
Among them, the size of public funds reached 27.60 trillion yuan, accounting for about 41.15%, an increase of 2.15 percentage points over last year.
The introduction of new asset management regulations in 2018 has pushed the asset management industry back to its roots, and has also brought space for fund companies to fully demonstrate their investment and research capabilities in the same competition with banks, brokerage firms, etc. 3) In terms of Xinchuang, by the end of 2023, all of the company's main products had been adapted to Xinchuang, helping more than 70 financial institutions to independently innovate and upgrade their core business systems; in the operation of the Xinchuang ecosystem, they signed contracts with relevant strategic partners and published the “White Paper on Information Technology Application Innovation in the Financial Industry”.
Maintain a “buy” rating. Based on key assumptions and recent announcements to adjust profit forecasts, we expect revenue for 2024-2026 to be $83.24/94.53/10.354 billion, respectively, and net profit to mother of $16.56/18.30/ $2.02 billion, respectively. Corresponding to the closing price on March 26, 2024, PE is 26.9/24.3/22.2, maintaining a “buy” rating.
Risk warning: The extent of policy benefits falls short of expectations; progress in financial migration falls short of expectations; capital market prosperity falls short of expectations.