Banks lead IT and maintain “buy” ratings

The company released its 2023 annual report, and the business structure continued to improve, after deducting high growth in non-profit. We maintain 2024-2025 and add a profit forecast for 2026. We expect net profit to be 4.41, 5.55, and 697 million yuan for 2024-2026, EPS of 1.00, 1.26, and 1.58 yuan. The current stock price corresponds to PE of 14.5, 11.5, and 9.2 times, maintaining the “buy” rating.

Event: Company releases 2023 annual report

In 2023, the company achieved revenue of 4.242 billion yuan, an increase of 15.48% over the previous year, and achieved net profit attributable to mother of 348 million yuan, an increase of 25.44% over the previous year. Net profit attributable to listed companies after deducting non-recurring profit and loss and excluding share payment expenses was 334 million yuan, an increase of 32.68% over the previous year.

The business structure continues to improve, with high growth after deducting non-profit

(1) The business structure continues to improve, and the proportion of high-margin businesses has increased. The company actively grasped the digital transformation of the banking industry and financial innovation development opportunities, and revenue continued to grow rapidly. The company further enhanced its ability to deliver software products and solutions. The gross margin of the information technology sector increased by 0.72 percentage points, and the revenue share further increased, driving the company's overall gross margin by 0.82 percentage points to 23.32%.

(2) Continue to expand small to medium banks and non-bank businesses, and gradually verify customer strategies. Based on the service experience of major state-owned banks, the company continues to abstract and refine solutions and service products, and continues to expand the small and medium banking business. Revenue from small and medium-sized banks and non-bank financial institutions in 2023 was 381 million yuan and 297 million yuan respectively, up 27.44% and 24.52% year on year, respectively. The growth rate was significantly faster than the company's overall growth rate, and customer strategies were gradually verified.

(3) Remarkable lean operation results, high growth after deducting non-profit. The company's sales, management and R&D expenses rates were 1.76%, 3.33%, and 9.29%, respectively, -0.11, -0.12, and -0.14 percentage points over the previous year. Through scientific budget management and project management systems, the company continued to improve management efficiency, continuous optimization of cost ratios, and remarkable results in lean operation. Increase gross margin and optimize the superposition ratio to drive high growth in the company's deducted non-net profit.

(4) Continue to strengthen the second growth curve to drive future growth. The company continues to promote the transformation from a traditional IT service company to a product and solution company, and continues to develop the second growth curve. The revenue of the software product and solution product line in 2023 was 935 million yuan, up 24.48% year on year. The growth rate ranked first among all product lines, accounting for a further increase in the company's total revenue share, and is expected to continue to drive the company's growth in the future.

Risk warning: Policy progress falls short of expectations; banks' IT investment falls short of expectations; order execution falls short of expectations.