The 2023 results fell short of our expectations, and the 1Q24 results were in line with our expectations. The company announced its 2023 results: annual revenue of 749 million yuan, +7.9%; net profit to mother of 62 million yuan, -62.3% year over year; net profit after deducting non-return to mother of 47 million yuan, -67.9% year on year. Among them, 4Q23 achieved revenue of 472 million yuan, +7.8% year on year; net profit to mother was 93 million yuan, or -36.0% year on year; net profit after deducting non-return to mother was 86 million yuan, or -40.6% year over year. Affected by delays in the bidding and acceptance process for some projects, the company's revenue growth rate slowed in 2023; industry competition led to a decline in gross margin; factors such as superimposed marketing system construction and early investment carry-over of integrated construction projects led to a rapid growth rate of sales expenses, and the company's profit side experienced a sharp decline, and the performance fell below our expectations.
The company simultaneously announced 1Q24 results: achieved revenue of 78 million yuan, +43.1% year-on-year; net profit to mother was 0.3 billion yuan, turning a year-on-year loss into a profit. The 1Q24 results were in line with our expectations.
Development trends
The dominant business is under pressure in the short term, and the financial and energy industries are growing rapidly. By industry, the company's revenue in the petroleum and petrochemical industry in '23 was 385 million yuan, -10.8%, mainly due to delays in procurement processes and revenue recognition for some projects; revenue from the construction real estate industry was 128 million yuan, -5.3% year over year, mainly due to business development not meeting expectations; financial industry revenue was 81 million yuan, +31.4% year over year, informatization construction in the field of supervision and insurance progressed rapidly; the coal and power industry revenue was 69 million yuan, +159.2% year on year. The company continued to expand customer groups such as Jinzhong Energy and Shandong Energy, and new customers in new industries The results of the expansion are beginning to show.
After 24 years, we are looking forward to the execution of strategic customer orders and the expansion of new customers, and profit margins are expected to rise again. The company continues to cultivate strategic customers in the petroleum and petrochemical fields. We expect that orders related to the company and strategic customers such as CNOOC and the National Pipeline Network may be implemented at an accelerated pace in 24 years. At the same time, the company is actively developing new strategic customers such as China Coal Energy and China Chemical. It won the bid for China Coal Energy's financial sharing service project in April '24, with a bid amount of 41.2 million yuan1, and a bid amount of 12.13 million yuan2. We believe the company is expected to continue cultivating and landing new strategic customers in '24. In terms of profit margins, we judge that the company's personnel growth rate may continue to slow in 24, the cost ratio may have declined, and the net profit margin is expected to pick up.
Profit forecasting and valuation
Taking into account delays in the procurement process for customers in the petroleum, petrochemical and construction real estate industries, the 2024 revenue/profit was lowered by 22.2%/48.0% to $8.72/139 million; the 2025 revenue/profit forecast of $1,06/170 million was introduced. The target price was lowered by 36.7% to $19 (switching the valuation to 28 times the price-earnings ratio of 2024), which is 34.5% higher than the current price. The current price corresponds to 20.6/16.9 times the 2024/25 price-earnings ratio. We believe that the company can continue to benefit from the localization of ERP and maintain an outperforming industry rating.
risks
The overall progress of the group fell short of expectations; the expansion of new customers fell short of expectations; domestic ERP research and development fell short of expectations.