Investment event: On March 29, the company released its 2023 annual report. The company achieved overall revenue of 5.204 billion yuan, an increase of 21.45%; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss reached 316 million yuan, an increase of 29.34% year on year; net profit attributable to listed companies after deducting non-recurring profit and loss and excluding share payment expenses was 362 million yuan, an increase of 65.49% year on year.
Revenue reached a record high, and Xinchuang related businesses grew rapidly. In 2023, the company achieved overall revenue of 5.204 billion yuan, an increase of 21.45% over the previous year. By business, the company's software business achieved revenue of 3.322 billion yuan, an increase of 5.54% over the previous year. Among them, major banks and joint stock banks in China contributed 51.04% of software revenue; small and medium-sized banks and agricultural credit cooperatives contributed 33.95%; and non-bank financial institutions, foreign banks and other financial customers accounted for 15.01% of software revenue. In line with the trend of independent innovation, the company's basic software and hardware business related to Xinchuang achieved revenue of 1,720 billion yuan, an increase of 77.47% over the previous year. The company innovated operations, deepened comprehensive cooperation with stable customers, and achieved revenue of 157 million yuan.
The gross margin of the software business has increased, and cash flow management is impressive. The comprehensive gross margin of the company's main business in 2023 was 25.90%, down 1.08 percentage points from the previous year. The main reason was the rapid increase in revenue from the system integration business with relatively low gross margin due to changes in revenue composition. However, looking at the gross margin of each business, the gross margin of the company's software development business increased 1.71 percentage points year over year to reach 31.13%, and the gross margin of the innovative operation business was 84.13%, maintaining a high gross profit trend. In 2023, the company's sales/management/R&D expenses rate was 3.10%/5.81%/10.92%, respectively. The sales expenses rate and R&D expenses rate decreased by 0.18% and 0.75%, respectively, compared with last year. The company attaches great importance to cash flow management. While revenue reached a record high, net cash flow from operating activities reached 447 million yuan, an increase of 155.08% over the previous year.
With the active deployment of AI, overseas business is expected to change. The company actively cooperated with standardized product companies and pioneered the launch of the first batch of large-scale model application products and solutions in the financial industry through independent research and development, including 4 application-level products and 1 development platform. In terms of overseas strategy, the company has strengthened cooperation with ecological partners to integrate and innovate self-developed fintech products adapted to the needs of overseas markets with advanced technology from ecological partners, which is expected to bring leap forward opportunities in the future.
Investment advice: According to the annual report issued by the company, considering the macroeconomic impact, some banks' investment in fintech has slowed. We have adjusted 2024 and 2025 to add profit forecasts for 2026. It is predicted that the company's revenue for 2024-2026 will be $57.25/63.29/7.027 billion yuan (2024-2025, respectively), and net profit to mother will be 3.6/4.07/469 million yuan (2024-2025, respectively), corresponding PE will be 26/23/20 times, respectively, maintaining the “buy” rating.
Risk warning events: business development falls short of expectations, slow policy advancement, intensification of industry competition, etc.