Incident Overview

The company recently released its 2023 annual report. In 2023, it achieved operating income of 7.281 billion yuan, an increase of 11.98% over the previous year, and achieved net profit of 1,424 billion yuan, an increase of 30.50% over the previous year. The company's performance achieved steady growth, and the effect of fee control was further reflected. According to the annual report, facing the new stage of development, the company proposed “Hang Seng Vision 2030” of “more first-class products, more satisfied customers” to fully prepare the company to become the world's leading fintech company. We expect the company to achieve better development with the dual help of AI models and financial innovation.

Performance has grown steadily, and fee control effects have been shown

On the revenue side, the company achieved an 11.98% year-on-year increase in revenue in 2023, and still achieved steady performance growth against the backdrop of pressure from the external environment. In terms of implementing key products, the company has achieved excellent results: O45 product maturity has been further improved, leading fund and asset management company projects have been completed; UF3.0 has signed 2 new strategic customers, completed projects at 2 leading brokerage firms, and completed the launch of memory trading versions for customers. Other key products such as integrated financial management, TA, valuation, allocation and trading terminals, customer marketing, algorithm services, and risk management have also achieved encouraging results.

On the profit side, the company achieved a 30.50% increase in net profit to mother, and the effect of fee control gradually became apparent.

The company's comprehensive gross profit margin in 2023 was 74.84%, up 1.28 pct from 2022. On the one hand, the company continues to deepen R&D process reforms such as IPD, and on the other hand, it also shows the company's strong product competitiveness. In terms of cost ratio, the year-on-year growth rate of the company's sales/management/R&D expenses in 2023 was -4.33%/+9.53%/+13.42%. The company's sales expenses declined, the growth rate of management expenses was lower than the revenue growth rate, and the cost control effect gradually became apparent.

AI and Xinchuang two-wheel drive help future development

On the AI side, in June 2023, the company released WarrenQ, the next-generation investment and research opening method, Photon, a financial intelligence assistant, and LightGPT, a major model for the financial industry. In October 2023, the company held the 2023 Hang Seng Financial Technology Conference to announce the latest capability upgrade results and application products of LightGPT, a major financial model, and announced the official opening of public testing. The company's financial model is expected to fully empower all businesses, reduce costs and increase efficiency, and at the same time create more new value for customers.

On the Xinchuang side, by the end of the reporting period, all of the company's main products had been adapted to help more than 70 financial institutions to independently innovate and upgrade their core business systems; in the operation of the Xinchuang ecosystem, contracts were signed with relevant strategic partners, and the “White Paper on Information Technology Application Innovation in the Financial Industry” was published. According to the company's annual report, UF3.0 completed the pilot launch of the Xinchuang full-link transaction in Shenzhen; O45 completed full-stack Xinchuang R&D, signed 53 new customers, and completed 24 customers. We believe that the trend of credit innovation in the financial sector is clear, and the company's products are fully adapted, and we can hope to seize the opportunity to achieve growth.

Investment advice:

As a leading domestic financial IT company, Hang Seng Electronics is expected to continue to benefit from AI and Xinchuang's demand in the financial sector. We expect the company to achieve operating income of 80.78/89.60/99.50 billion yuan in 2024/25/26, and achieve net profit of 16.67/19.19/2,176 billion yuan.

Maintaining a buy-A investment rating, a 6-month target price of 26.32 yuan is given, which is equivalent to 30 times the dynamic price-earnings ratio of 2024.

Risk warning: Product development falls short of expectations; downstream customer capital expenditure shrinks; policy progress falls short of expectations.