Incident: On March 27, the company released the “2023 Annual Report”, achieving operating revenue of 5.264 billion yuan, an increase of 16.09%; net profit attributable to shareholders of listed companies was 193 million yuan, an increase of 6.70% year on year, in line with market expectations.
The results grew steadily in 2023, and the digital economy business progressed steadily. 1) Throughout 2023, the company achieved operating income of 5.264 billion yuan (+16.09%); net profit to mother of 193 million yuan (+6.70%), and steady operating growth.
In the same period, the company achieved non-net profit deducted from mother of 122 million yuan (+146.92%). 2) With 2023Q4, the company achieved operating income of 1,558 billion yuan (up 8.38% year on year); net profit of 37 million yuan (up 31.11% year on year); net profit after deducting non-return to mother of $0.23 billion (year-on-year decrease of 4.40%). 3) By business, in 2023, the company's cloud computing big data revenue was 2,543 million yuan (-1.19%). The first phase of the Songjiang Big Data Center project was officially put into operation during the reporting period, and the second phase of the project was introduced into Songjiang New Town as a major functional issue in Shanghai; industry solution revenue of 2.204 billion yuan (+51.92%), rapidly developing in the field of urban safety management and smart livelihood; intelligent product revenue of 624 million (+12.11%), dedicated to leading the middle and high-end domestic scientific instrument products market.
Gross profit margins are under pressure in the short term, and expense ratios and cash flow are improving steadily. 1) Gross profit margin of 17.99% (-1.75 pcts) in 2023, gross profit margin 16.01% (-5.97 pcts) in 23Q4. Gross margin is under pressure in the short term. Considering the company's core card position in Shanghai's digital economy, profit margins are expected to recover. 2) Sales/management/R&D expense ratios in 2023 were 4.97%, 5.24%, and 7.08%, respectively. Compared with the previous year, they remained relatively stable 3) Net cash flow from operating activities of 462 million yuan (+116.26%) and 23Q4 net cash flow from operating activities of 870 million yuan (up 79.38% year over year).
The core of factors and the main force in intelligent computing, Shanghai's state-owned cloud lords set sail. 1) Data elements: Since 2022, the digital economy and data elements have become the country's top strategy. The company is the core digital economy platform under the Shanghai State-owned Assets Administration Commission, and has implemented the entire industry chain layout in terms of data elements, including state-owned clouds, government data governance, and data product development and application.
2) Intelligent Computing Platform: In August 2023, the General Office of the Shanghai Municipal People's Government issued the “Action Plan to Promote Innovation and Development of the Data Factor Industry Based on the New Circuit of the Digital Economy (2023-2025)”, which indicates that the total computing power will quadruple by 2025 compared to the end of the 13th Five-Year Plan period. On June 30, 2023, the company announced the establishment of a computing power facility company in a joint venture with Yidian Group and others, holding 11% of the shares. The position of Shanghai Intelligent Computing's top platform has been established, and the speed of implementation is expected to continue to exceed expectations.
3) Intelligent cloud service: The company's subsidiary Shanghai Nanyang Wanbang Software Technology Co., Ltd. and Beijing Xinnuo Times Technology Development Co., Ltd. are the core domestic MSP service providers for mainstream cloud service providers such as Microsoft, Ali, Huawei, and China Telecom. At present, Microsoft has become a global leader in AIGC technology and applications, and the company is expected to rely on Azure cloud services to solidly promote the export of AI capabilities.
Maintain a “buy” rating. The company is a core service provider for the digital economy in Shanghai. With the acceleration of computing power infrastructure, data elements, and the digital transformation of government and enterprises, the business is expected to grow steadily. At the same time, considering the intense digital competition in government affairs in 2023, which slightly affects the profit margin level in the short term, we adjusted the profit forecast. The company expects to achieve operating income of 60.23, 68.17, and 7.661 billion yuan in 2024-2026, and achieve net profit of 2.27, 2.65, and 300 million yuan. Maintain a “buy” rating.
Risk warning: government spending falls short of expectations; development of AI technology falls short of expectations; revenue and profit assumptions fall short of expectations; impact of international relations.