Core views
The company released its 2023 annual report for the first quarter of 2024. In 2023, it achieved revenue of 17.58 billion yuan, realized net profit of 530 million yuan, and realized net profit of 460 million yuan without deduction to mother. The first quarter of 2024 achieved revenue of 5.45 billion yuan, realized net profit of 280 million yuan, and realized net profit of non-return to mother of 280 million yuan. The company has cooperated deeply with Huawei, and has made significant progress in opening independent products from Hongmeng, Euler, and Gauss. At the same time, it has achieved an integrated software and hardware layout through mergers and acquisitions, driving continuous business growth. Considering the company's revenue and consolidation cycle after the merger of Tongfang Computer and Tongfang International, we raised our revenue forecast and lowered our profit forecast. We expect the company's revenue to be 348.73/392.04/42,912 billion yuan respectively in 2024-2026, up 98.36%/12.42%/9.46% year on year, and net profit to mother is 6.03/9.05/1.01 billion yuan, up 12.98%/50.07%/32.74% year on year, corresponding to PE63/42/31 times, maintaining the “buy” evaluation grade.
occurrences
On April 26, Softcom Power released its 2023 annual report and 2024 first quarter report. In 2023, the company achieved operating income of 17.58 billion yuan, a year-on-year decrease of 7.97%; realized net profit of 534 million yuan, a year-on-year decrease of 45.15%; and realized net profit without return to mother of 462 million yuan, a year-on-year decrease of 44.89%. In the first quarter of 2024, the company achieved revenue of 5.449 billion yuan, an increase of 29.7% over the previous year; realized net profit attributable to mother - 277 million yuan; and realized net profit deducted from non-mother - 284 million yuan.
Brief review
The contraction of traditional IT outsourcing led to a decline in revenue in 2023, and the consulting and solutions business performed well. Revenue from traditional IT outsourcing services decreased by 16.4% in '23. Among them, revenue from the communications equipment industry was 7.054 billion yuan, a decrease of -18.35% year on year, and revenue from the Internet industry was 3.287 billion yuan, a decrease of -9.34% year on year. The telecommunications industry mainly had outsourcing price reductions, and the Internet industry was mainly due to a contraction in its BPO demand. The consulting and solution business achieved revenue of 1,319 billion yuan in 23 years, an increase of 24.08% over the previous year. The company cooperated with many leading enterprises in the communications and Internet industries to provide digital innovation services such as cloud services, industrial Internet, and enterprise management software to promote technological upgrading and digital transformation for industry customers.
Gross margin declined in Q1 '24, putting pressure on profit-side performance. The company's revenue grew in Q1 in '24, profit declined, and gross margin declined. The main reasons are: 1) The company completed the merger and acquisition of Tongfang Computer and Tongfang International at the end of January 2024. Costs such as business integration and organizational consolidation in the early stages of integration increased, and interest expenses on merger and acquisition loans increased.
2) Market demand fluctuates during the Spring Festival and price competition among key customers. 3) The VAT credit policy expires.
Independent technology products such as Open Source Hongmeng, Euler, and Gauss continue to break through. On the open source side of Hongmeng, SwanLinkOS, the first operating system in the industry with a cross-instruction set, built by the subsidiary Honghu Wanlian, reached strategic cooperation with many leading companies in the LED display industry, and promoted the implementation of the system in related application scenarios in mining, electricity and other industries. In terms of open source Euler, the company's self-developed Tianhe OS has made significant progress and successfully won the bid for the Chinese mobile operating system migration project. On the open source Gauss side, it has launched a number of solutions in the financial field through products such as Tianhe DB.
Tongfang Computer and Tongfang International mergers and acquisitions have been launched, and the field of computing power has been deeply laid out. The company's merger and acquisition of Tongfang Computer and Tongfang International was officially completed in February this year, laying out the computing power field. The company has carried out all-round cooperation with Kunpeng Computing and Shengteng Computing. Its products include products such as Shengteng all-in-one, Kunpeng all-in-one, and AI training and promotion integrated platforms, and will continue to take on Tongfang's computer business as a core partner in the Huawei Kunpeng Shengteng ecosystem to promote the development of the computing power server business. As the first batch of partner companies, the company signed a contract to enter the Beijing Shengteng Artificial Intelligence Computing Center, jointly launched large-scale model joint innovation, and won the bid for China Telecom Ningxia Company's 2023 centralized computing power service procurement project section 1 with the first successful candidate, demonstrating the company's strength in computing power-related businesses.
Currently, domestic computing power is being doubly catalyzed by industrial development and policy promotion, and is expected to maintain a high level of prosperity. The company's layout in the computing power field is under pressure on performance due to business integration and adjustment in the short term, but it will contribute incremental revenue and profit to the company in the long run.
Investment proposal: The company cooperated deeply with Huawei, and achieved significant progress in opening independent products from Hongmeng, Euler, and Gauss. At the same time, it has achieved an integrated software and hardware layout through mergers and acquisitions, driving continuous business growth. Considering the company's revenue and consolidation cycle after the merger of Tongfang Computer and Tongfang International, we raised our revenue forecast and lowered our profit forecast. We expect the company's revenue to be 348.73/392.04/42,912 billion yuan respectively in 2024-2026, up 98.36%/12.42%/9.46% year on year, and net profit to mother is 6.03/9.05/1.01 billion yuan, up 12.98%/50.07%/32.74% year on year, corresponding to PE63/42/31 times, maintaining the “buy” rating .