Incident: The company released its 2023 annual report and 2024 quarterly report. Net profit of 23 billion yuan, a year-on-year decrease of 22.28%, net profit of 70.4 million yuan, a year-on-year decrease of 57.58%, net profit after deducting non-return to mother of 67.53 million yuan, a year-on-year decrease of 60.27%; 24Q1 achieved revenue of 256 million yuan, a year-on-year decrease of 21.37%, and net profit to mother of 19.06 million yuan, a year-on-year decrease of 55.27%.
Here are our reviews:
The continuous expansion of the application field of embedded security products has driven steady growth in the scale of the industry. Embedded security products, represented by smart cards, have been widely used in various fields of the national economy such as social security, finance, communications, transportation, medical care, education, etc., and China has become one of the largest countries and regions for embedded security products such as smart cards. In addition to traditional smart card product forms, more and more innovative applications in the form of eSE, eSIM, etc. are widely used in multi-modal and multi-field IoT devices, such as industrial interconnection, automotive electronics, and low-altitude economy. In the financial sector, the size of the bank card market has maintained a steady development trend; in the social security sector, there is still a lot of room for improvement in the penetration rate of third-generation social security cards; in the communications sector, the iteration of new technologies, new products and new application scenarios has created broad growth space for SIM cards and IoT cards. In 23 years, innovative technologies in the communications sector in China have developed rapidly, and innovative products such as super SIM cards and quantum communication cards are being promoted strongly.
Seize opportunities to build a digital economy and continue to advance all businesses
Embedded security products: Affected by fluctuations in market demand for some products, revenue of 1,072 billion yuan was achieved in '23, a year-on-year decrease of 16.40%. The company continues to maintain a high market share in the fields of finance, social security, communications, transportation, etc. with rich experience in COS system development, advanced manufacturing levels, and large-scale operation advantages. In the digital yuan field, in '23, the company closely cooperated with operating institutions and industry applicators to create a number of nationally launched and pioneering digital yuan innovative products and application solutions, and participated in a number of prominent projects with demonstration effects: deeply participating in the open source Hongmeng atomization development, cooperating with excellent partners to build a digital yuan payment and digital smart contract ecosystem, and successfully combining smart contract technology with prepaid card business.
Smart hardware business: Achieved revenue of 147 million yuan in '23, an increase of 8.98% year over year. In the field of fintech, the company started from two major application scenarios: in-branch and off-bank expansion, to develop and upgrade portable card machine products with all types of bank cards, multiple processes, and multiple forms. In the field of digital government, starting from the perspective of enterprises and the public, the company takes business and scenarios as the center, and creates integrated digital government integrated solutions integrating intelligent terminals, system platforms, and operation services based on technical applications such as artificial intelligence, big data, big models, AI digital models, RPA robots and video cloud seats, promoting the development of government services in an intelligent, efficient and convenient direction with new quality productivity, and comprehensively supporting the digital transformation and upgrading of government services.
Software and services: Achieved revenue of RMB 80.91 million in '23, a year-on-year decrease of 69.76%. The company responded positively to the Ministry of Human Resources and Social Affairs's policy requirements to accelerate the construction of a “one-card” social security card service for residents, supported by the construction of the “One-Card Service for Residents” platform, used digital technology to innovate application scenarios, and participated in the construction of one-card system projects in many provinces and cities. The company continues to promote the implementation and application of integrated file services. The company's digital file services cover more than 100 cities, and the total digital processing volume has exceeded 500 million pages, laying the foundation for the smooth implementation of China's “Digital People's Society” action plan.
Profit forecasts and investment suggestions:
As a leading enterprise in the smart card industry, the company has advanced production technology, rich experience, and high-quality customer resources; it is expected to continue to benefit in the future in the context of third-generation social security card exchanges and the continuous promotion of digital yuan; the communications sector is also full of opportunities, and communication products and solutions that combine digital identity and digital currency applications have broad prospects. Considering fluctuations in market demand for some products and the company's maintenance of large R&D investment and marketing efforts, the company's net profit for 24-26 is estimated to be 1.01/1.21/143 million yuan, respectively (the original value for 24-25 was 222/240 million yuan), maintaining a “gain” rating.
Risk warning: risks caused by electronic trends in the social security and financial payment industry; risk of fluctuating raw material prices; new technology development and commercial application falling short of expectations, etc.