Benefiting from the trend of domestic ERP substitution, the improvement in cloud business profits is expected to drive continued growth in R&D investment. We lowered the company's 2024-2025 net profit forecast to RMB 3.21/481 million (previous value: RMB 421/776 million), and added the 2026 net profit forecast of RMB 678 million. The corresponding year-on-year change rates were 59.3%/49.7%/40.9%, respectively, corresponding to the diluted EPS 0.3/0.4/0.6, corresponding to the latest stock price of HK$3.26 2024-2026 9.6/6.4/4.5 times PE. The company is expected to benefit from the trend of domestic ERP software substitution, product competitiveness and continuous expansion of customer coverage in the industry. The cloud business continues to grow at a high rate, and the improvement in profitability is expected to drive overall net profit to usher in a rapid expansion trend and maintain a “buy” rating.
Profit in 2023 is basically in line with expectations. ERP vendors with state-owned assets are expected to continue to benefit from the domestic replacement company's revenue of 8.294 billion yuan in 2023, an increase of 19.1% over the previous year, and net profit attributable to shareholders of the parent company of 202 million yuan, an increase of 69.9% over the previous year, which is basically in line with our previous expectations. As a state-owned ERP manufacturer, the company's controlling shareholder, Inspur Group, is the actual controller of the Shandong Provincial State-owned Assets Administration Commission. It has a good reputation and product service delivery capabilities, and is expected to continue to benefit from the trend of domestic replacement in the ERP field. In 2023, the company reshaped the product system and released a new “Inspur Haiyue” brand spanning intelligent ERP, industrial software, and PaaS platform products. Product competitiveness and vertical industry coverage were improved. During the year, the company successfully signed 11 new central enterprise headquarters, including China Rare Earth and China National Machinery, and successfully broke through energy central enterprises such as Datang Group and China National Pipeline Network, as well as a large number of key customers such as China's Maotai, Shanghai Tunnel, and Jingneng Group.
The rapid growth of the cloud business and the achievement of profit in 2023H2 is expected to continue to drive the company's overall performance growth. The company's cloud business achieved revenue of 2 billion yuan in 2023, an increase of 59% over the previous year. The growth rate is far higher than the 19.1% growth rate of the company's overall revenue growth rate, 9% of the management software business revenue growth rate, and 11% of the IoT business revenue growth rate. Cloud revenue accounted for 24.1% of the company's total revenue in 2022 (18.1% in 2022), accounting for 44.8% of core business excluding IoT (35.7% in 2022). The share of cloud business continues to rise, showing that the company's cloud transformation is progressing smoothly. Among them, the 2023H2 cloud business segment profit was successfully corrected, achieving a division profit of 53 million yuan, and a corresponding division profit margin of 4.1%. The continuous advancement of the company's cloud transformation and improvement in the profitability of the cloud business are expected to continue to drive rapid growth in the company's revenue and profit.
Risk warning: The progress of enterprises moving to the cloud falls short of expectations; market competition intensifies; the expansion of major customers falls short of expectations.