Performance performance

On April 11, 2024, the company released its 2023 annual report

[Overall performance]

(1) 2023 revenue of 6.503 billion (-3.01%), net profit attributable to mother of 655 million (2.59%), net profit not attributable to mother of 645 million (4.8%).

(2) 23Q4 revenue of $2,582 million (-8.21%), net profit attributable to mother of $285 million (-14.57%), net profit not attributable to mother of $285 million (-11.61%).

[Business Segmentation]

By industry, business revenue in the financial sector was $4.115 billion (-0.72%), of which income from insurance business was $3,598 million (-1.29%); revenue from the government sector was $1,068 million (8.72%); revenue from the medical and health sector was 297 million (-5.75%); and business revenue from UNESCO and other fields was $1.08 billion (-19.23%).

By product, the software product business revenue reached 112 million (+28.5%), software development and service revenue of 5.148 billion (+0.99%), and system integration and services reached 1.29 billion (-18.42%).

[Gross profit margin, cash flow]

The gross profit margin in 2023 was 31.56% (up 2.27pct year on year), and the 23Q4 gross profit margin was 27.44% (up 1.7 pct year over year).

Net cash flow from operating activities in 2023 was 196 million (-30.31%), 23Q4 net cash flow from operating activities was 1.29 billion yuan (-23.85%).

[Fee rate]

In 2023, the sales/management/R&D expense ratio was 5.02%/1.63%/14.5%, the sales expense ratio increased by 0.2 pct year on year, the management fee ratio increased 0.29 pct year on year, and the R&D cost rate increased 1.09 pct year on year.

Note: Yoy's year-on-year growth rate for the above quarter

Performance reviews

Accounting standards for insurance contracts continued to advance, and revenue from the software business achieved positive growth. The company achieved annual revenue of 6.503 billion yuan, a year-on-year decrease of 3.01%. Among them, the company's software business revenue maintained positive growth, achieving revenue of 5.260 billion yuan, an increase of 1.45% over the previous year. The system integration business revenue was 1,229 billion yuan, down 18.42% year on year. The system integration business was affected by the pace of customer acceptance, which in turn affected the company's overall revenue growth. However, the growth rate of new orders signed in the system integration business was still at a high level. By the end of December 2023, the total contract amount for system integration projects that had not yet been implemented by the company was about 2.5 billion yuan, laying the foundation for a rebound in future system integration business revenue growth.

According to IDC/CCID rankings, the company has been ranked first in the domestic insurance industry's IT solution market share and IT service provider competitiveness assessments for many years. As the insurance industry continues to promote the new IFRS 17 insurance contract accounting standard, the traditional core business system group is undergoing integration and upgrading. The company is expected to see continued growth in overall revenue in 2024.

While commercialization & internationalization & “insurance +” are ongoing, the gross profit level of the company's software business continued to rise to 35.63%, up 1.01 percentage points from 2022. Among them, the company achieved sales revenue of 112 million yuan with fully standardized products, an increase of 28.50% year on year, and direct business revenue from the “Insurance+” strategy was 130 million yuan, an increase of 55.66% year on year; under the internationalization strategy, customers outside the mainland achieved revenue of 235 million yuan, an increase of 15.41% year on year;

The rapid growth in revenue from related innovative businesses has contributed to a further increase in the gross margin of the software business and its contribution to the company's net profit. In the future, the company will continue to develop its business with the software business as the core, and strive to achieve new breakthroughs through the “insurance+” strategy, internationalization strategy, and “flywheel” strategy on the basis of ensuring the stability of traditional advantageous businesses.

Increase investment in R&D and actively embrace AI

The company's R&D expenses in 2023 were 943 million yuan, an increase of 4.84% over 2022, and the R&D expenses ratio increased 1.09 pct year over year. R&D personnel accounted for 36.08%, an increase of 1.56pct over the previous year. As a knowledge-intensive and technology-intensive industry, the insurance industry has highly complex business scenarios. It is an important industry for AIGC technology applications. The company actively explores the application of AIGC technology in clients, forms diverse products and solutions based on the MaaS platform, covering scenarios such as insurance customer service, marketing, claims, underwriting, training, product design, etc., and is expected to continue to generate revenue in the future.

Profit forecasting and valuation

We expect the company to achieve operating income of 69.21/75.24/8.258 billion yuan in 2024-2026, with a year-on-year growth rate of 6.43%/8.71%/9.75%; net profit to mother in 2024-2026 will be 7.21/8.23/ 961 million yuan, with a year-on-year growth rate of 10.07%/14.16%/16.82%, corresponding EPS of 1.21/1.39/1.62 yuan, corresponding P/E is 22/19/17. Despite a relative slowdown in the company's performance growth rate in 2023, profitability continued to increase, there were plenty of on-hand orders, and the promotion of accounting standards continued to increase IT investment in the insurance industry or allow the company to usher in an increase in performance in 24, so we maintained a “buy” rating.

Risk warning: Insurance IT investment is insufficient, and the results fall short of expectations; the “Insurance+” strategy and AI big model application fall short of expectations.