Downstream customer capital constraints affect the company's profits. Focusing on demand-side improvements, Newpoint Software released an annual report. In 2023, revenue was 2,441 billion yuan (yoy -13.56%), net profit to mother was 195 million yuan (yoy -66.00%), and non-net profit of 78.815 million yuan (yoy -80.40%) was deducted. Among them, Q4 revenue was 1,063 million yuan (yoy -13.28%), and net profit to mother was 284 million yuan (yoy -27.96%). The decline in performance was mainly due to tight client funding, and overall project revenue fell short of expectations. Expected 24-26 EPS 0.86/1.09/1.37 yuan. Segment valuation, 24E digital construction revenue is 400 million yuan, comparable to the company's average 24E 4.2x PS (wind), giving the company 24-year 4.2xPS, 24E net profit of 350 million yuan from other businesses, comparable to the company's average 24E 20.9x PE (Wind), giving the company 20.9x PE for 24 years, with a target price of 27.02 yuan to maintain “purchase”.

The reduction in tender opening affected operating revenue. Product iteration and customer development continued to drive smart procurement business revenue of 1,022 billion yuan in 2023, a decrease of 16.4%. Of this, procurement operating revenue was 365 million yuan, a decrease of 26.6%. Due to a decrease in the number of tenders opened on the bidding platform in 2023, there was also a certain impact on operating income. On the business side, the company's product coverage continues to expand. In terms of tenderer services, the company's SaaS electronic trading platform Xindian electronic trading platform added 85 new zones in 2023; the number of platform transaction segments increased by 41% year-on-year. In terms of bidder services, by the end of 2023, the company had completed access to nearly 500 platforms, and the number of newly registered users increased by 41% over the same period last year. The company develops a large-scale model for the recruitment industry to enable high-frequency business scenarios for bidders such as preparation of bid documents and intelligent automatic pricing. We believe that in the future, as downstream demand gradually recovers, the company may benefit from a good customer/product base.

Smart government seizes data element opportunities, and digital architecture actively creates a benchmark project. The company's smart government business revenue in 2023 was 1,055 billion yuan, a decrease of -14.5%; in terms of smart government, the company undertook more than 1,400 projects in 2023 and actively grasped data element industry opportunities, focusing on AI+ government services, virtual cloud integrated windows across Yangtze River Delta provinces, data elements, etc. Among them, in terms of data elements, the company launched a comprehensive application solution for public data scenarios and grass-roots data. It is expected that the project will continue to be implemented and applied in the later stages Operation. Digital construction revenue was 358 million yuan, down -2.6%. The company continued to build benchmark projects. In 2023, it undertook projects such as the Jiangsu Digital Housing Safety Supervision Platform and the Yantai Smart Construction Site Supervision Platform. We believe the company is expected to benefit from the development of the data element industry and the gradual maturity of the digital construction business.

Operational efficiency is expected to improve, profitability, or gradual restoration

In 2023, the company's sales/management/ R&D expenses rate was 28.26%/7.59%/21.02%, +3.76pct/+1.09pct/+2.41pct year-on-year. The company continues to strengthen capacity building in the middle and back office to promote platform-based and standardized management of R&D, sales and delivery. As the project delivery specialization reform 2.0 continues to advance, the success rate of one delivery has reached more than 98%. We believe that as the company continues to improve operational efficiency and reduce operating costs, profitability is expected to gradually recover.

Risk warning: Macroeconomic fluctuations; operating income growth falls short of expectations.