Incidents:

The company announced its 2023 performance report. According to the company's announcement, it achieved revenue of 2,516 billion yuan in 2023, an increase of 59.54% over the previous year, and realized net profit of 343 million yuan, an increase of 41.10% over the previous year, and realized net profit without deduction of 230 million yuan, an increase of 37.00% over the previous year. 2024Q4 achieved revenue of 1,116 billion yuan, a year-on-year increase of 48.98%, and realized net profit to mother of 239 million yuan, an increase of 39.57% over the previous year. The 2023 results are in line with expectations.

Comment:

The first growth curve continued to increase, and the second growth curve began to contribute to the increase. According to the company's announcement, the company achieved high-quality growth in 2023, according to application areas 1) maintained stability in special fields, achieving revenue of 836 million yuan (yoy +15.69%) in 2023; 2) aerospace surveying and operation control maintained a relatively rapid growth rate, achieving revenue of 229 million yuan (yoy +61.08%) in 2023; 3) smart government, meteorology, ocean and enterprise energy continued to grow at a high rate of 742/382/231 million yuan in 2023, respectively, with year-on-year growth rates of 106.87%/101.58%/ 111.74%; 4) Second growth curve The online business began to contribute incrementally, achieving revenue of 121 million yuan in 2023. Our analysis believes that the company continues to deepen the implementation of a group and ecological development strategy. The first growth curve business continues to develop steadily, the second growth curve has entered the harvesting stage ahead of schedule, core competitiveness continues to improve, and revenue is expected to remain high in 2024.

The profit model upgrade is compounded by the improvement in profit quality, and the performance is expected to continue to increase. According to the company announcement, gross margin in 2023 was 48.33%, down 0.53 pcts from 2022, and net margin was 19.16%, down 0.08 pcts from 2022. According to our analysis, 1) The decline in net profit margin is mainly due to a decrease in gross margin and continued increase in R&D. In 2023, the company spent 373 million yuan on R&D, and the R&D expenditure ratio was 14.81%, an increase of 0.66 pcts over 2022. 2) The company strengthened control over the entire life cycle of the project. In 2023, the net cash flow from operating activities was 125 million yuan, the cash flow was positive, and high-quality growth was achieved. We believe that as demand from the downstream military and civilian sector continues to be released and superimposed management and control capabilities continue to be optimized, the company's performance is expected to continue to grow at a high rate.

Continue to improve the industrial chain layout, and the group horse racing strategy is becoming more and more perfect. According to the company's announcement, 1) On January 29, Changguang Satellite, a subsidiary of Zhongke Xingtu, signed a strategic cooperation framework agreement. As cooperation between the two continues to deepen, downstream demand for remote sensing applications will continue to expand, helping the company develop in the long term. 2) The subsidiary Starmap has a deep-sea layout in the underwater field. Beidou Fuxi is committed to building a domestic aerial “Gaode Map” to help the development of the low-altitude economy. The capitalized operation of Starmap Surveillance and Control and Starmap Weitianxin is accelerating, and the company's group horse racing strategy is becoming more and more perfect, which is expected to drive the company to continue to grow rapidly.

Digital Earth's core enterprise, four major highlights help the company grow rapidly. 1) The company is a domestic digital Earth national team and is deeply involved in special fields. Defense informatization is expected to accelerate in the late 14th Five-Year Plan period, and demand in special fields may exceed expectations; 2) The company vigorously developed digital Earth online business and built a supermarket-style remote sensing data trading platform. The second growth curve is beginning to bear fruit; 3) Reached strategic cooperation with Changguang Satellite to continue to improve the industrial chain layout to help the company develop in the long term. 4) Group horse racing strategies are becoming more and more perfect, and capitalized operations of subsidiaries such as Starmap Measurement and Control and Starmap Weitianxin are speeding up, and Beidou Fuxi is expected to fully benefit from the development of the domestic low-altitude economy.

The 2024-2025E profit forecast was lowered and the “Buy” rating was maintained. Considering the company's accelerated expansion of downstream application areas and continued to increase R&D investment, and the cost rate may rise slightly, we lowered the company's net profit forecast for 2024-25E to 4.84/681 million yuan (previous value was 514/752 million yuan), and the net profit forecast for 2026E was 971 million yuan. The PE corresponding to the current stock price is 39/28/20 times, respectively. Considering that the company is a core enterprise in the field of remote sensing applications in China, the first growth curve continues to increase, and the online business on the second growth curve is expected to increase. Achieved rapid growth and therefore maintained a “buy” rating.

Risk warning: Product delivery falls short of expectations; market competition increases risk; online business market expansion falls short of expectations.