Xinchuang & Overseas is expected to drive the company's continued revenue growth

Changliang Technology released its annual report. In 2023, it achieved revenue of 1,918 billion yuan (yoy +1.62%), net profit of 32.1463 million yuan (yoy +43.30%), deducting non-net profit of 257.366 million yuan (yoy +190.21%).

Among them, Q4 achieved revenue of 741 million yuan (yoy -10.91%, qoq +72.95%) and net profit to mother of 305.610,000 yuan (yoy +85.32%, qoq +163.44%). We expect that as the market environment recovers, the conversion of company contract orders is expected to accelerate, and revenue growth is expected to accelerate in 24 years. We expect the company's 2024-2026 EPS to be 0.09, 0.15, and 0.24 yuan respectively (previous value 2024-2025 0.10 and 0.15 yuan).

Comparable to the company's average 24E 2.5x PS (Wind), the company was given 24E 2.5x PS, corresponding to a target price of 7.88 yuan (previous value 12.41 yuan), which was a “purchase”.

The end of the decline in gross margin led to an increase in net profit attributable to mother

In 2023, the company's net profit to mother increased by 43.30% year on year, and profitability improved, mainly due to the overall stabilization of gross margin. In 2023, the company achieved a gross profit margin of 34.00%, an increase of 0.43 pct. In terms of cost ratio, the company's sales/management/R&D expenses rate in 2023 was 8.65%/14.39%/6.90%, compared with +0.86pct/+1.51pct/-0.52pct. Among them, the management expense ratio increased a lot over the same period last year, mainly due to the increase in share payment expenses and employee remuneration. The share payment and amortization amount in 2023 was $34.84 million. In addition, the subsidiary Changliang Hedu calculated a goodwill impairment of 16.19 million yuan due to performance reasons. Excluding share payments and goodwill impairment, the company achieved a net profit of 85.93 million yuan to the mother in 2023.

New contracts have gradually resumed, and the recovery in industry demand is expected to drive revenue growth. The company's digital finance business solutions/big data application system solutions/comprehensive value management solutions achieved revenue of 11.49 million yuan, 6.20, and 149 million yuan respectively in 2023, +3.82%, -2.87%, and +4.64% compared to the same period last year. Among them, the comprehensive value management solution business is growing rapidly, mainly due to the recovery of the market environment and the continuous accumulation of the company's software capabilities, and certain breakthroughs have been achieved in the signing of new contracts and contract delivery. In 2023, the contract amount for the company's general ledger financial products increased by more than 100%, successfully winning bids for important projects such as a commercial bank in Macau, an internet bank, and four urban and rural commercial banks. In addition, in 2023, the company also made a breakthrough in the core system field and won the bid for a core business system project of an asset company one of the top five domestic asset companies. We believe that the company has been deeply involved in financial IT for many years, and has accumulated a large number of advantages in finance/fund management, etc., and the recovery in downstream markets such as Xinchuang is expected to drive the company's revenue growth to accelerate.

Overseas market expansion is expected to open up room for the company to grow

We believe that due to the rapid pace of digital transformation in China's financial industry, domestic fintech products are gradually forming comparative advantages with rich scenarios, advanced technology, high-quality services, and lower costs, making them highly attractive to overseas bank customers. For overseas markets, the company focuses on products such as Icore, FxCore, and Mcore, and continues to expand key markets in Southeast Asia such as Malaysia, Thailand, and Indonesia. We believe that overseas market expansion is expected to further open up room for the company to grow.

Risk warning: macroeconomic fluctuations, downstream demand falls short of expectations.