Key points of investment:
Event: The company released its 2023 annual report and 24Q1 quarterly report. According to the annual report, in 2023, the company achieved operating income of 243 million yuan, YOY +23.5%; net profit to mother of 44.46 million yuan, YOY +20.3%. 23Q4, single quarter revenue of 110 million yuan, YOY +34.7%, net profit to mother of 40.12 million yuan, YOY +30.3%. In 24Q1, the company's revenue was 34.44 million yuan, YOY +4.7%; net loss to mother was about 12.18 million yuan. The 23 annual report results were in line with expectations, and the 24Q1 results were slightly below expectations.
2024Q1's slightly lower than expected results were mainly due to increased investment. According to the company's announcement, 24Q1's losses in a single quarter were mainly due to business scale expansion and personnel expansion. 24Q1's sales expenses ratio reached 51.8%, and R&D expenses rate reached 70.9%.
Overall revenue grew steadily in 2023, with all-in-one revenue growing faster than pure software. According to the annual report, the company's pure software revenue in 2023 was 143 million yuan, a year-on-year growth rate of 16.7%, all-in-one machine revenue of 50.1 million yuan, a year-on-year growth rate of 30.6%, and software services of 37.72 million yuan, a year-on-year growth rate of 26.4%. All-in-one computers achieve the fastest growth rate, mainly because customers are more demanding convenient solutions integrating software and hardware in one stop.
Gross margin declined slightly in 2023. According to the annual report, the company's comprehensive gross profit margin in 2023 was 83.5%, -3.33pct year-on-year. By business, the gross profit margin for pure software is 96.65%, the gross profit margin for all-in-one computers is 63.85%, and the gross profit margin for software services is 85.73%. The gross margin of pure software and all-in-one computers has declined, mainly due to the increase in the cost of imported software and hardware in the all-in-one computer and the increase in labor costs in the pure software business.
In 2023, sales and R&D capabilities were added, and the cost ratio was increased. In 2023, the company's sales expense ratio was 30.2%, +1.8pct year on year, R&D expenses rate 37.4%, +0.6pct year on year. This was mainly due to the company's additional sales and R&D personnel during the year.
In 2023, the company increased its technical staff by 89 and its sales staff by 46.
The net cash inflow from operating activities for the full year of 2023 was 3.25 million yuan. There was a net outflow of 7.965 million yuan in the same period last year. There was an increase in operating accounts receivable, but the company transferred upstream to achieve a net cash inflow.
Profit forecast and valuation: We adjusted the profit forecast and introduced the 2026 forecast. The estimated revenue for 24-26 is $3.18, 4.13, and 541 million yuan (4.06 billion yuan and 559 million yuan for 24-25 years before adjustment), and net profit to mother of 0.62, 0.87, and 128 million yuan (net profit before adjustment was 1.23 million yuan and 197 million yuan for 24-25, respectively). The current market value corresponds to the average PE for 24-26. We give British Software an average PE of 42x, 30x, and 20x, respectively. 2024E 67x target valuation, maintaining a “buy” rating.
Risk warning: Leading vendors have entered the market through mergers and acquisitions, and competition has intensified; pure software cannot become a mainstream trend; accounts receivable generate bad debts.