Operations in the fourth quarter were under pressure in the short term, and recovery is expected to accelerate in 24 years

The company released its 2023 annual report, achieving operating income of 1,347 billion yuan, a year-on-year increase of 5.01%, and realized net profit of 168 million yuan, a year-on-year decrease of 8.83%. Among them, 23Q4 revenue was 543 million yuan, down 12.70% year on year, and net profit to mother was 54 million yuan, down 9.13% year on year. With the recovery of the company's operating environment in 2024, we expect the company's net profit to be RMB 219/2.83/361 million yuan respectively in 2024-2026 (previous value of RMB 1.87/2.71 billion in 2023-2025). Comparatively, the company's 25-year Wind unanimously expected an average PE value of 53.9 times. Considering the accelerated release of future value of health insurance data, the company was given 60 times PE in 24 years, with a target price of 32.08 yuan (previous value 29.87 yuan), maintaining an “increase” rating.

The decline in profit in '23 was mainly due to pressure on gross margin. Overall cost control was good, and the company's gross margin for the year 2023 was 47.61%, down 7.63pct year on year. Sales/management/R&D rates were 12.57%/9.00%/11.31%, respectively, and the year-on-year change was -0.86/-0.85/-2.24pct. The number of employees in the company was 4,521, a year-on-year decrease of 5.73%. The per capita income was 297,900 yuan, an increase of 30,000 yuan over the previous year, and the per capita profit was 371,000 yuan, which was basically the same as the previous year. Looking at specific business segments, the company's health insurance/digital government revenue in '23 was 707/550 million yuan, +15.07%/-7.48% YoY, and gross margin was 45.20%/49.37%, respectively, and -12.66%/-3.65% YoY. The sharp decline in gross margin of the medical insurance business is mainly due to the impact of the epidemic on the construction and acceptance of provincial health insurance platforms, which lengthened the project cycle and increased personnel costs in the short term.

Cash flow improved significantly, increasing R&D investment to maintain product competitiveness. The company's net operating cash flow in 2023 was 188 million yuan, an increase of 401.38% over the previous year. Cash received by the company from sales of goods and provision of services increased by 20.52%, and the quality of revenue improved significantly. In 2023, the company's R&D investment accounted for 20.51% of revenue, an increase of 1.33pct over the previous year. Continued high investment in R&D helped the company's products maintain industry-leading competitiveness. The company won the bid for the 105 million yuan contract for the information technology construction service system for the five hospitals in Taiyuan City. The confirmed revenue for the year 23 was 20.89 million yuan. We expect that the remaining part of the contract will be settled at an accelerated pace in 2024, providing a good guarantee for the company's medical insurance business revenue to resume growth.

Support policies for the data element industry continue to be strengthened, and the company's business model is expected to break through. On April 2, the National Data Administration solicited public comments on “Guiding Opinions on Deepening Smart City Development and Promoting Digital Transformation Across the City”. The “Opinions” stated that it is necessary to “accelerate the establishment of urban data resource operation, facility operation, and service operation systems, explore new government-enterprise partnership mechanisms, and promote authorized operation of urban public data in an integrated manner.” The policy strongly supports the development of data elements. In particular, the need to “enrich inclusive digital public services” mentioned in the “Opinion” is closely related to the company's medical insurance and smart government business. The company has a leading layout in the health insurance data element business. With the introduction of state support one after another, the company's business model is expected to achieve breakthroughs at an accelerated pace.

Risk warning: medical business promotion falls short of expectations; government's ability to pay is insufficient; market competition is intensifying.