Key points of investment

Changliang Technology released its 2023 annual report, with total revenue of 1,918 billion yuan, +1.62% year on year; net profit to mother was 32 million yuan, +42.98% year on year; net profit after deduction was 26 million yuan, +188.6% year on year.

Single Q4: Total operating income was 741 million yuan; net profit to mother was 31 million yuan; net profit after deduction was 32 million yuan.

Core business has grown steadily, and overseas business has declined

By product: Financial core solutions accounted for the largest revenue of 1,149 million yuan, +3.82% year over year; big data solutions generated 620 million yuan, -2.87% year over year; total value management solution revenue was 149 million yuan, +4.64% year over year.

By region: Overseas revenue declined, with revenue of 125 million yuan, -25.62% year on year; domestic business revenue of 1,793 billion yuan, +4.28% year over year.

Gross margin stopped falling and stabilized, showing results in cost reduction and efficiency

The company's gross margin for 2023 was 34.00%, an increase of 0.43 pct over the same period last year. This is mainly due to cost reduction and efficiency and the decline in the impact of the epidemic on the project. Due to the delay in revenue and cost recognition due to the revenue confirmation method in the final report, the effects of cost reduction and efficiency were not fully reflected. Furthermore, the company said that in the future, it will focus on selecting customers, adjusting the R&D delivery management organization structure, strengthening R&D investment and horizontal technology integration of key products, embracing artificial intelligence, forming comparative advantages in key areas, enhancing the intrinsic value of products, strengthening international R&D of key domestic products, and vigorously expanding overseas markets to increase gross profit margins. In summary, we expect the company's gross margin to continue to rise.

The increase in sales expenses and management expenses exceeded the increase in revenue over the same period, which lowered the company's net interest rate level. The sales cost rate, management cost rate, and R&D expense ratio were 8.65%/14.39%/6.90%, respectively, +0.86/+1.51/-0.52 pct compared with the same period last year. Sales expenses were +12.91% year-on-year, mainly due to the increase in sales staff revenue, which was lower than the +17% growth rate of the 2023 sales contract. Management expenses were +13.58% year-on-year, mainly due to the increase in the company's share payment expenses and remuneration. The amount of amortization paid for the company's shares was $38.377 million, and the amount of goodwill impairment reserves amounted to $18.9452 million. Excluding the effects of share payments and amortization and impairment of goodwill, the company achieved net profit attributable to shareholders of listed companies of 85.9292 million yuan in the current period.

Core system orders have exceeded the highest level in history, and international core systems have broken overseas monopolies and obtained core business system construction contracts from more than 10 banks, surpassing the best level in previous history. Among them, it won the bid for a full-core system construction project for a national joint-stock commercial bank. This project is the first core system construction project for the joint-stock bank construction model. The company successfully won the bid for a large state-owned commercial bank, thus achieving full coverage of the customers of the six major state-owned commercial banks. Also, as an important participant, it participated in the bank core system mainframe downgrade project of a national joint-stock bank.

In terms of overseas business, after more than a year of R&D investment, SUN-CBS, a next-generation core integrated business system for international banks, was formed. The aim is to help overseas customers achieve the construction of a new generation of core systems that have been downsized and break the market pattern that has long been monopolized by European and American manufacturers in Southeast Asia. The company won a bid for a Thai bank's large-scale downsizing and new core system construction with a historically high contract amount, which is expected to set a model for the Southeast Asian market and usher in new historical opportunities.

Profit forecasting and valuation

Considering that in order to expand the market and develop overseas products, the cost-side growth rate is relatively fast, and there is a certain time for revenue-side project delivery, so profit growth is limited in the short term, so we lowered the company's profit forecast. In the long run, along with the opening up of overseas markets, the company's revenue is expected to reach 22.23, 26.75, and 3.210 billion yuan in 2024-2026, with year-on-year growth rates of +15.92%, +20.31%, and +20.00%; net profit to mother is 1.51, 2.56, and 376 million yuan, respectively, with year-on-year growth rates of +370.36%, +69.16%, and +47.07%, corresponding to 34 times PE in 2024.

Risk warning

R&D falls short of expectations; overseas competitive environment deteriorates; overseas policy uncertainty; rising personnel costs