Event: On March 28, Wealth Trends released its 2023 Annual Report. In 2023, we achieved net profit of 310 million/yoy +102%, deducted non-net profit of 290 million yuan/yoy +38%; achieved operating income of 430 million/yoy +35% in 2023.
The company's performance increased in '23, and operating cash flow continued to improve. 1) Performance split: The revenue of the software sales business, software service business, and securities information service business in 2023 was 2.1, 150 million yuan, and 70 million yuan, respectively, +76%, +15%, and +3% year-on-year, respectively, accounting for 48%, 36%, and 16% of revenue respectively. 2) Looking at single-quarter results: 4Q23's net profit to mother is 110 million yuan/yoy +30% /qoq +42%, 4Q single-quarter revenue of 190 million/yoy +50% /qoq +84%. 3) Operating cash flow continues to improve: In 2023, the company received 450 million yuan/yoy +26% in cash from sales of goods and services, and the net cash flow from operating activities was 240 million yuan/yoy +19%, and sales repayment performance was good throughout the year.
Continue to increase research and development to improve quality and efficiency to promote profitability restoration. 1) Continued investment in R&D:
In 2023, the company conducted in-depth research in the field of generative AI and language models, continued to improve Xiaoda's natural language understanding performance and new financial application scenarios, and maintained R&D resource investment; annual R&D investment was 75 million yuan/yoy +6.6%, and the R&D cost rate was 17.4% /ypy-4.66pct. 2) Good cost control:
In 2023, the company strengthened cost and expense control. The annual sales expense ratio and management expense ratio were 2.3% and 2.3%, respectively. The gross margin of the company in '23 was 85.5% /yoy+1.80pct, and the net profit margin was 71.4% /yoy+23.68pct (the net profit base was very low, mainly due to a sharp reduction in the fair value of investment products in '22).
B-side business: National secret transformation and financial credit innovation drive high business growth, and accelerate business collaboration and epitaxial development. 1) Seize financial credit innovation opportunities to achieve high performance growth: In 2023, the company seized financial credit innovation opportunities, accelerated research and development of various product lines, and actively promoted the deployment and launch of domestic commercial password security systems and Xinchuang products at major brokerage firms, leading to a significant increase in revenue for each product module; the B-side business (software sales+software service business) revenue for the whole year was 360 million yuan/yoy +44%. 2) Accelerated market layout: In '23, the company increased capital of its Hong Kong subsidiary by 200 million yuan to further expand the Hong Kong market; in February '23, the company handed over 33% of Xinyi Technology's shares, further expanding the back-office business layout of securities IT; in the future, the company will continue to lay out new markets and strive to achieve business collaboration and outreach development.
C-side business: Accelerate product development, and subsequent market transaction popularity recovery is expected to boost C-side business growth. 1) Continue to broaden product and service boundaries: The company continues to enrich existing product functions to meet the diversified and personalized investment and financial management needs of customers; in 2024, the company will focus on investing in product development in the bond market to accelerate the strengthening of all types of financial database systems. 2) The scale of C-side customers is stable: In 2023, the average monthly activity of the Tongdaxin App was 1.849,000/yoy +5.8%. Subsequent capital market trading popularity continued to pick up, and the company increased operating investment, which is expected to drive an increase in C-side business monetization efficiency.
A strategic cooperation agreement was signed with Tencent Cloud to accelerate business collaboration and expansion. On 3/26, the company issued an announcement and signed a “Strategic Cooperation Agreement” with Tencent Cloud. The two parties will conduct in-depth technical and business cooperation in scenarios such as basic cloud resources, Xinchuang databases, to C-terminal apps, and AIGC based on Tencent Cloud's technical resources and market advantages in the fields of cloud computing and AI models. The company has been deeply involved in the securities IT industry for many years. This cooperation will further enhance the competitiveness of the company's securities IT business, accelerate the company's C-side product development pace, and open up room for the company's future growth.
Investment analysis opinion: Maintain the Wealth Trend “Highly Recommended” rating. The company has been deeply involved in the securities IT industry for many years. It has maintained its competitive advantage in segmented fields, continued to expand its product matrix and business boundaries, compounded the high elasticity of the C-side business under the subsequent recovery in market trading popularity, and maintained a “highly recommended” rating. We expect net profit from Wealth Trend 2024E-2026E to be 3.6, 4.4, and 520 million yuan, +16% year-on-year; the current total market value corresponds to the 2024-2026 dynamic PE of 39.2 times, 31.9 times, and 27.5 times, respectively.
Risk warning: C-side business progress falls short of expectations; the pace of implementation of financial credit innovation falls short of expectations; investment returns fall short of expectations.