Core views:
The company discloses its annual report for '23 and its quarterly report for '24. 1.23 billion yuan in revenue, down 1.8% year on year; net profit to mother was 2,554 billion yuan, +16.8% year on year; net profit after deducting non-return to mother was 2,413 billion yuan, +15.2% year on year. 2. 24Q1 revenue of 3.391 billion yuan, +34.4% year-on-year.
The gross margin of all major businesses increased markedly in '23. The gross margin fluctuated to a certain extent in 24Q1, so keep an eye on subsequent changes. The gross margin of software development and engineering services increased by 3.45 pct year on year, and the gross margin of service outsourcing increased by 4.22 pct year on year. The increase in gross margin of the two major businesses drove the company's comprehensive gross margin to increase by 3.89 pct year on year. In the future, it will benefit from the promotion of autonomous and controllable products with higher gross margins, and there is still some room for improvement in the company's overall gross margin. The gross margin for 24Q1 was 32.68%, down 7.58pct from 23Q1 and 0.26pct higher than 22Q1. There was some fluctuation. Focus on subsequent changes.
The amount of related transactions is expected to increase markedly in 24, and strong demand within the Baowu system will help growth. According to the company's announcement, the company expects related transactions related to its main business to be about 12.7 billion yuan in 24, of which the transaction volume with Baowu System Company is estimated to be 10.185 billion yuan in 24, an increase of 8.3% over the estimated amount in the previous 23 years, and an increase of 46.7% over the actual amount accrued in 23. We have always believed that based on Baowu Group's leading domestic and large-scale steel production line, Baoxin can achieve a positive cycle of product development, verification, and optimization, improving the company's product strength while also helping growth. Furthermore, by forming application cases in Baowu Group, product popularity will be greatly increased, and it will enter other key industries as an independent domestic brand, further opening up Baoxin's growth ceiling.
Contract liabilities fluctuated slightly, and cash flow performance remained steady. Both year-end and 24Q1 contract liabilities fluctuated slightly, while cash flow performance was steady. Net cash flow from operating activities increased by 3.4% and 24.6% year-on-year respectively in '23 and 24Q1.
Profit forecasting and investment advice. It is estimated that in 24-26, the company's net profit to mother will be 3,013 billion yuan, 3.627 billion yuan, and 4.590 billion yuan, respectively. We maintain the judgment that the company's reasonable value is about 50.75 yuan/share, corresponding to the 24-year EPS valuation of about 40X PE, and maintain a “buy” rating.
Risk warning. The impact of profit fluctuations in the steel industry on its IT spending capacity; uncertainty about the pace of development and application of new products such as PLC; uncertainty about the pace of IDC expansion and AI computing power upgrades.