Event Overview:

1) Recently, Hande Information released the “2023 Annual Report”. In 2023, the company achieved operating income of 2,980 billion yuan, a year-on-year decrease of 0.9%; net profit loss to mother was 25.383 million yuan, after deducting a net profit loss of 83.393 million yuan.

2) Recently, Hande Information released the “Report for the First Quarter of 2024”. The company achieved operating income of 732 million yuan, an increase of 1.63% year on year; net profit to mother was 504.456 million yuan, an increase of 59.53% year on year, and net profit after deducting non-return to mother was 27.0797 million yuan, an increase of 21.6% year on year.

3) On May 6, Hande Information released the 2024 restricted stock incentive plan. It plans to grant 41.98 million restricted shares to 268 active company core technology (business) personnel, accounting for about 4.26% of the company's total share capital on the day this draft incentive plan was announced. The grant price was 3.38 yuan/share. Company-level performance assessment targets are: revenue trigger value of 3.2 billion yuan in 2024, target value of 3.6 billion yuan, net profit trigger value of 120 million yuan, target value of 200 million yuan; revenue trigger value of 3.36 billion yuan in 2025, target value of 3.78 billion yuan, net profit trigger value of 140 million yuan, target value of 220 million yuan.

Short-term changes in the industry environment and the company's active adjustments put pressure on performance. On the one hand, the company's overall business growth rate in 2023 fell short of expectations. On the one hand, it stemmed from changes in the short-term pace of the industry environment, and on the other hand, because the company established a business strategy of “healthy development, quality improvement, sedimentation capacity, and optimization of cash flow” in line with the short-term situation, it actively optimized and adjusted the business. The main strategies include optimizing and adjusting internal operation management mechanisms, controlling order risk, and improving the health of cash flow. Focusing on improving quality and efficiency over the long term, the company introduced and implemented various measures in the second half of 2023, but they also had a phased impact on revenue growth and profits.

There are three main reasons for the decline in net profit: First, there was a large change in non-recurring profit and loss in the same period last year. After Shanghai Zhenhui Information Technology Co., Ltd.'s restructuring and capital increase was completed, the company's shares in Zhenhui Technology (or the restructured Cayman Company) fell to 19.3618%. The company no longer had a significant impact on it. The company's remaining shares were calculated according to financial assets, the fair value of financial assets minus the book value continuously calculated from the beginning of the joint enterprise equity method. The difference between the two brought the company more than 300 million yuan in investment income in 2022. Second, the company took the initiative to adopt phased measures in the second half of the year, leading to short-term fluctuations in gross margin.

Third, R&D and sales expenses continue to increase due to investment in R&D and commercial development.

In the first quarter of 2024, the company's net profit increased by nearly 60% year on year. On the one hand, due to the continuous improvement in the maturity of independent software products and continuous optimization of implementation methods, the gross margin increased steadily; on the other hand, thanks to the company's continuous optimization and adjustment of the business structure since the second half of last year, optimizing the cost structure, implementing performance reforms, improving quality and efficiency, various reform measures were effectively implemented, and the optimization effect was beginning to show.

Strengthen quality and efficiency, and continue to actively seize AI and new opportunities to go overseas. In 2023, the company's independent product business progressed steadily, and industrial digitalization and financial digitalization continued to grow during the reporting period, which was the main driving force for the company's revenue growth during the reporting period. The independent business (digitalization of industrial+digitization of finance) achieved revenue of 1,527 billion yuan, an increase of 5.74% over the previous year. Revenue share increased from 48.02% in 2022 to 51.24% in 2023.

According to the annual report, quickly returning to the profit channel is Hande Information's primary business goal in 2024.

To this end, the company has implemented various reform measures in the second half of 2023, mainly including: streamlining personnel to reduce labor costs; strengthening performance reward and punishment mechanisms to improve gross margin and healthy cash flow; and improving centralized delivery to increase personnel productivity. In 2024, the company will continue to implement these measures and continue to optimize on this basis to ensure the achievement of goals.

In terms of intelligent AI applications, the company launched self-developed AIGC Zhongtai H-Copilot products in mid-2023 based on years of technology and product solution capabilities. In the first year, the company surpassed the planned number of orders and achieved revenue of about 22 million yuan in 2023. In 2024, the company will step up exploration and pioneering efforts in AI applications to take the lead in seizing the highlands.

In terms of overseas business development, the company has implementation experience in 80+ countries around the world, covering many countries and regions such as Asia, North America, Europe, Southeast Asia, Oceania and Africa. In 2023, the company accelerated the digital service business to support Chinese companies going overseas, and also accelerated the development of overseas corporate markets, led by the Japanese market. In 2024, the company will maintain its strength and continue to develop overseas markets. At the same time, the company has built a delivery center and started operation in Southeast Asia. Through the integration of multi-regional resources, it can achieve higher output efficiency in some business areas.

Investment advice

As a comprehensive digital supplier for enterprises, Hande Information mainly provides digital software, solutions and consulting and implementation services for large enterprises. Considering the additional expenses brought about by equity incentives, and referring to the performance assessment targets of equity incentives, we expect the company to achieve operating income of 33.20/36.55/4.287 billion yuan from 2024 to 2026, and net profit to mother of 1.89/2.38/273 million yuan, respectively. Maintaining a buy-A investment rating, the 6-month target price is 7.69 yuan, which is equivalent to a dynamic price-earnings ratio of 40 times in 2024.

Risk warning: AI product implementation falls short of expectations; industrial software industry development falls short of expectations