Matters:

Recently, the company released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 1,401 billion yuan, an increase of 5.78% over the previous year; realized net profit of 146 million yuan, an increase of 3.34% over the previous year; after deducting non-net profit of 143 million yuan, an increase of 1.36% over the previous year. With 2024Q1, the company achieved operating income of 176 million yuan, a year-on-year decrease of 16.84%; net profit to mother was 19 million yuan, a year-on-year decrease of 27.28%.

Commentary:

Performance was steady, and expenses declined slightly during the period. Revenue side: In 2023, the company achieved total operating revenue of 1,401 billion yuan, a year-on-year increase of 5.78%, and achieved net profit of 146 million yuan, an increase of 3.34% over the previous year; after deducting non-net profit of 143 million yuan, an increase of 1.36% over the previous year. With 2023Q4, the company achieved operating income of 578 million yuan, a year-on-year decrease of 2.54%; net profit to mother was 66 million yuan, a year-on-year decrease of 3.50%. Expense side: In 2023, the company's expense ratio declined slightly year-on-year. The sales, management, and R&D expenses rates were 6.66% (-0.25pp), 4.57% (-1.14pp), and 3.37% (+0.07pp), respectively.

Customer coverage continues to expand, and third-party operation and maintenance services remain stable. In 2023, the company continued to explore the market and expand the customer segment it served. Revenue from new customers accounted for 4.30% of the company's total revenue. In July 2023, the company won the bid for the first batch of informatization projects (operation and maintenance) related projects of Guizhou Power Grid Co., Ltd. in 2023. At the same time, in 2023, the company continued to expand the IT infrastructure third-party operation and maintenance service market, and the third-party operation and maintenance service business achieved revenue of 558 million yuan, maintaining a stable trend. Among them, the third-party operation and maintenance service business from industries other than the financial industry achieved revenue of 149 million yuan, an increase of 8.59% over the previous year.

Financial Credit Innovation is being implemented at an accelerated pace, and the company is deepening and improving the ecological construction. According to IDC, the IT investment scale of China's banking industry will reach RMB 221,276 billion in 2026, with a compound growth rate of 11.2% from 2022 to 2026.

As an important part of Xinchuang, the financial industry is progressing rapidly. The company has a good financial customer base and has built a number of benchmark projects. Currently, it is continuously improving and deepening the Xinchuang IT infrastructure ecosystem, and has established deep cooperative relationships with leading vendors in the server, storage, network, operating system, and database fields such as Huawei, Xinhua 3, Inspur, Shuguang, Lenovo, Kirin Software, Tencent Cloud, Alibaba Cloud, ZTE, Dameng, Dongfangtong, and Baoland to deepen the layout of the Xinchuang industry.

Participating in the construction of a cross-border payment system is expected to open up new growth points. Demand for cross-border payment services continued to grow during the 2024 Spring Festival, and Alipay users' overseas spending increased 140% year over year. Meanwhile, the company said it has participated in IT infrastructure construction for some clients' cross-border payment systems and provided operation and maintenance services for related IT infrastructure. Taking advantage of emerging opportunities for cross-border mobile payments, the company's business field is expected to expand.

Investment suggestions: Considering the pace of promoting the localization of Xinchuang in downstream sectors such as finance, and the company's performance in the first quarter, we expect the company's revenue to be 16.62/19.20/2,167 billion yuan in 2024-2026, corresponding growth rates of 18.6%/15.5%/12.9% (the original 2024-2025 forecast value was 21.141/2,514 billion yuan); net profit to mother of 1.74/2.00/225 million yuan, corresponding growth rates were 19.1%/15.0%/12.4%, respectively (original 2024) -2025 forecast value 222/269 million yuan). Referring to the valuation level of comparable companies, the company was given 25 times PE in 2024, corresponding to a target price of 43.5 yuan, maintaining the “recommended” rating.

Risk warning: market competition risk, market expansion risk, market product iteration and technological innovation risk.