Key points of investment:
Incident: Hang Seng Electronics released its 2023 annual report, achieving revenue of 7.281 billion yuan, a year-on-year increase of 11.98%; realized net profit of 1,424 billion yuan, a year-on-year increase of 30.50%; and realized deducted non-net profit of 1,448 billion yuan, an increase of 26.55% over the previous year.
Revenue is generally in line with previous forecasts, and profit is slightly higher than forecast. The previous annual report forecast revealed 1,345 billion yuan, with revenue of 7.292 billion yuan. The expected profit exceeds the forecast mainly due to the implementation of a stricter fee control plan in 2023, and actual bonus expenses are lower than previously predicted.
Cash flow led revenue in the fourth quarter, and the high-quality development strategy achieved remarkable results. The company continued its “customer satisfaction first” strategy after 2023, leading to an extension of some order confirmation cycles and the streamlining of some non-core product lines, which partly affected 23H2's revenue growth. However, due to the corresponding improvement in project quality, the repayment situation was optimistic. Cash inflows in the 23Q4 single quarter increased 11.8% year-on-year, ahead of revenue growth.
After the fee was controlled, a “scissor gap” in remuneration costs began to appear. In 2023, the company's sales/management/R&D expenses rate was 8.11%/13.09%/36.55%, respectively, with year-on-year change of -1.38pct/-0.29pct/+0.47pct. Actual salary expenses fell 7.9% in the fourth quarter, and a “scissor gap” in salary costs began to appear.
The two core businesses, Fortune Technology and Asset Management Technology, have maintained relatively steady growth. 1) Fortune Technology's revenue increased by 4.27%, and the growth rate slowed, mainly due to demand from Xinchuang and others not fully released in 2023. Currently, UF3.0 has completed the pilot launch of the Xinchuang full-chain transaction; 2) Asset management technology revenue increased by 9.27%. The core product O45 completed full-stack Xinchuang R&D, signed 53 new customers, and completed 24 customers, including Huabao Fund O45.
Operational technology products such as TA are growing well, demand for LDP and other rapid increases, and data services are seeking new growth points. 1) Operating and institutional technology revenue increased by 14.32%, mainly due to the good promotion of next-generation TA6.0, the signing of nearly 100 new customers, and the next-generation valuation system signing more than 30 customers; 2) Risk and Platform Technology revenue increased by 19.06%, HDP iteration of data center products, completed the release of the full-memory version of the two financial services and launched it for customers with low latency; 3) data service revenue of 19.27%. The intelligent investment research product line quickly incubates WarrenQChat and ChatMiner based on the self-built big language model. The number of active WarrenQ users continues to grow, and the big model application products are being co-built with many customers.
Profit forecasts and ratings. Taking into account the company's high-quality development strategy after 2024, shrinking non-core product lines, and improving order quality, the 2024-2025 revenue forecast was lowered to 80.48 billion yuan and 9.018 billion yuan, the original forecast was 9.571 billion yuan and 11,523 billion yuan. At the same time, the profit forecast was lowered to 16.93 billion yuan and 1.946 billion yuan. The original forecast was 2,179 billion yuan and 2,501 billion yuan. Additional revenue and profit forecasts for 2026 are 100.51 billion yuan and 2,016 billion yuan. Corresponds to 26x PE in 2024. Maintain a “buy” rating.
Risk warning. Policy implementation fell short of expectations, demand for new IT modules fell short of expectations, new product promotion was slow, and internal management improvements fell short of expectations.