Incident: On April 12, Zhongkesoft released its 2023 Annual Report. Throughout 2023, the company achieved operating income of 6.503 billion yuan, a year-on-year decrease of 3.01%; net profit to mother of 655 million yuan, an increase of 2.59%; deducted non-net profit of 645 million yuan, an increase of 4.80% year-on-year.

Project acceptance and budget adjustments put pressure on performance, and the company seized new opportunities to consolidate its market position: throughout 2023, the company achieved revenue of 6.503 billion yuan, a year-on-year decrease of 3.01%. Looking at the spin-off, the system integration business revenue was 1,229 billion yuan, down 18.42% year on year. The system integration business declined sharply due to the pace of customer acceptance, which in turn affected the company's overall revenue growth. However, the growth rate of new orders for the company's system integration business was still at a high level. As of the end of December 2023, the company's unimplemented system integration project contract amount totaled about 2.5 billion yuan, laying the foundation for a rebound in future system integration business revenue growth; the company's software business revenue continued to grow positively, achieving revenue of 5.260 billion yuan. The year-on-year increase was 1.45%. Affected by the transformation and transformation of the insurance industry, some customers were delayed in the year-end acceptance process and faced short-term budget adjustments. However, the company seized the business opportunities brought by the direction of IFRS17 insurance system construction, AIGC application in the insurance industry, and adaptation of insurance core business systems to localization transformation. While continuously exploring customer needs, it still maintained its current market position and high customer stickiness. Overall, the company faced some business pressure in 2023, but it is still actively exploring new market opportunities and continuously developing new channels for performance growth.

Optimize the marketing system and strengthen AI investment to reduce high-risk projects and enhance profitability: on the cost side, the company's sales expenses in 2023 were 327 million yuan, an increase of 1.04% over the previous year. During the reporting period, the company continued to optimize business development methods, emphasized collaboration in various business areas, and strengthened sales organization and sales strategy levels. R&D expenses were 943 million yuan, an increase of 4.84% over the previous year. The main reason was that during the reporting period, the company seized the opportunity of AI model transformation and focused on promoting vertical MaaS platform research and development in various industry applications. The management cost was 106 million yuan, an increase of 18.06% over the previous year. In terms of profitability, the gross margin of the company's main business reached 31.45% in 2023, up 2.27 Pct from the same period last year; the net profit margin reached 10.07%, up 0.55 Pct from the same period last year. The company's profitability was further enhanced. The company mainly summarized the development of the past few years, assessed factors such as customer repayment ability, credit level, and project execution risk, and actively compressed high-risk projects to drive the quality improvement of the company's projects.

Continue to implement the “Insurance+” strategy to empower various fields: during the reporting period, the company continued to implement the “Insurance+” strategy. In the field of “insurance+big health”, the company actively lays out pilot projects in the fields of medical care, social security, health management and other fields through technological empowerment to open up links between insurance product pricing, automated claims and underwriting, and health management services; in the “insurance+big transportation” field, the company actively explores service model upgrades in the fields of automobile maintenance and claims processing through technological innovation; “insurance+big consumption”. In the field of “insurance+big consumption”, the company focuses on Internet consumption and other fields to help insurance customers provide consumers with more comprehensive consumer risk protection through digital means; “insurance+big safety” In the field, the company strengthens cooperation and exploration with financial insurance customers and risk scenario monitoring agencies, and embeds insurance into risk points such as fires, agricultural disasters, network security, payment security, production equipment safety, and household property safety through technology to help the insurance industry improve the risk management and prevention capabilities of property insurance and reduce payout rates. During the reporting period, the company's direct business revenue from implementing the “Insurance+” strategy was 130 million yuan, an increase of 55.66% over the previous year. We believe that as the insurance industry shows diversified characteristics, insurance technology will also become an indispensable part of social development, and the company's layout is expected to help insurance further refine user positioning and marketing channels and methods.

Profit prediction and investment rating: The company is committed to the development and service of software and hardware products in the insurance industry. At the same time, it actively penetrates various fields, and benefits from the continuous increase in the industry's enthusiasm for technological investment. We are optimistic about the company's development and forecast that in 2024-2026, the company will achieve revenue of 7.095 billion yuan, 7.478 billion yuan, and 8.171 billion yuan; net profit to mother of 755 million yuan, 872 million yuan, 1,118 million yuan; EPS 1.27, 1.47, 1.88, PE 21.1X, 18.3X, and 14.2X, maintaining an “increase in wealth” rating.

Risk warning: Industry competition intensifies; industry prosperity falls short of expectations; technological innovation progress falls short of expectations; project implementation progress falls short of expectations.