Core views
In 2023, the company achieved operating income of 828 million yuan, an increase of 37.71% year on year; achieved net profit of 61 million yuan, an increase of 922.84% year on year, and returned to high revenue growth. In the first quarter of 2024, the company achieved revenue of 120 million yuan, an increase of 3.84% year on year; realized net profit to mother of -0.26 million yuan, a year-on-year decrease of 44.94%. The profit side was slightly pressured by seasonal fluctuations in revenue. Among them, the domestic commercial market and overseas market performed well, and the education market was relatively weak. We believe that as the company continues to increase investment in R&D, the continuous iteration of 2DCAD, 3D CAD, and CAE products, combined with the company's efforts to segment the industry and sink markets through encrypted channel distribution, revenue is expected to maintain a relatively rapid growth rate in 2024. According to the company's results for the first quarter of 2023 and 2024, we adjusted the profit forecast for 2024-2025 and added the 2026 forecast. The estimated revenue is $9.96/12.26/15.31 billion yuan, up 20.35%/23.10%/24.91%, respectively, and net profit to mother of 0.80/1.05/140 million yuan, up 30.10%/31.96%/33.01% year over year, corresponding to PE112/85/64 times, maintaining the “buy” rating.
occurrences
The company announced the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 828 million yuan, a year-on-year increase of 37.71%; realized net profit of 61 million yuan, an increase of 922.84% over the previous year; realized net profit without deduction of -78 million yuan, a year-on-year decrease of 14.81%. In the first quarter of 2024, the company achieved operating income of 120 million yuan, a year-on-year increase of 3.84%; realized net profit of 0.26 million yuan, a year-on-year decrease of 44.94%; realized net profit deducted from non-mother - 78 million yuan, a year-on-year decrease of 53.32%.
Brief review
Revenue returned to a high growth range in '23. Domestic commercial markets and overseas markets performed well, and the growth rate of the education business was under pressure. In 2023, the company achieved revenue of 828 million yuan, a year-on-year increase of 37.71%, returning to a high growth range. Excluding the revenue from the acquisition of Bochao and merger, the company still increased 21.67% year-on-year. By business, the company's domestic and foreign strategic layout showed results. The domestic commercial market achieved revenue of 501 million yuan, an increase of 43.66%; the overseas market achieved revenue of 157 million yuan, an increase of 71.14% over the previous year; the domestic education business was affected by factors such as the objective market environment and cyclical adjustments in industry policies, and only achieved revenue of 166 million yuan, an increase of 4.87% year on year, falling short of expectations.
There was steady growth in the first quarter of 2024, and the profit side declined year-on-year due to personnel expenses. In 1Q24, the company achieved revenue of 120 million yuan, a year-on-year increase of 3.84%; realized net profit to mother of -0.26 million yuan, a year-on-year decrease of 44.94%. On the revenue side, the revenue of the domestic commercial market distribution team increased by more than 35% year on year, and the overseas market increased by nearly 50% year on year, continuing the trend of high growth in 23; the education market continued to be pressured by factors such as the late resumption of work and classes during the Spring Festival holiday in '23 and the delay in funding disbursements. On the profit side, 1Q24 saw a sharp year-on-year decline, mainly due to factors such as an increase in the number of personnel, the introduction of industry leaders, and the acquisition of Bo Chao, etc., which led to a large year-on-year increase in personnel costs.
Investment in R&D continues to be strengthened, and the three major product lines are working simultaneously. The company focuses on research and development of independent core technology for design industrial software, and related investment continues to be high. The R&D expenses in 2023 were 390 million yuan, an increase of 35.07% over the previous year, and the R&D expenditure rate reached 47.09%; 1Q24 R&D expenses were 101 million yuan, an increase of 29.15% over the previous year, and the R&D cost rate reached 84.21%. By product, thanks to continuous product refinement, the company's 2D CAD products achieved revenue of 472 million yuan in 2023, an increase of 16.53%; 3D CAD products achieved revenue of 188 million yuan, an increase of 16.28% year on year; CAE products improved the layout of the fluid simulation field through the acquisition of CHAM in the UK, and achieved revenue of 71487 million yuan, an increase of 209.67% year on year. We believe that as the company focuses on customer core needs, continues to develop iterative functions, and incorporates AI technology into ZWCAD and ZW3D products to be released in 2024, the company's product lines will work simultaneously to jointly promote the company's revenue performance to maintain a high growth range.
Improve channel construction, shift from direct sales to direct distribution, and expand market coverage. While consolidating the advantages of the existing direct sales business, the company is vigorously promoting the encryption of the distribution network to strengthen its advantage in specific industries and sinking markets. In 2023, the company achieved direct sales revenue of 504 million yuan, a year-on-year increase of 46.33%, and achieved distribution revenue of 320 million yuan, an increase of 25.83% over the previous year. However, without considering the impact of the acquisition of Beijing Bochao, the revenue contributed by dealers to the company is already growing faster than the direct sales team. We believe that as the company gradually promotes a strategic transformation from direct sales mainly to direct distribution, it is expected to improve per capita efficiency, reduce sales expenses, and at the same time provide high-quality pre-sales and after-sales services to domestic and foreign customers to help expand the market.
Investment advice: As the company continues to increase investment in R&D, 2D CAD, 3D CAD, and CAE products continue to iterate. Combined with the company's efforts to segment the industry and sink markets through encrypted channel distribution, revenue is expected to maintain a relatively rapid growth rate in 2024. Based on the company's results for the first quarter of 2023 and 2024, we adjusted the profit forecast for 2024-2025 and added a 2026 forecast. The estimated revenue is $996/12.26/1,531 million yuan, up 20.35%/23.10%/24.91% year on year, and net profit to mother is 0.80/1.05/140 million yuan, up 30.10%/31.96%/33.01% year on year, corresponding to PE112/85/64 times, maintaining the “buy” rating.
Risk analysis
(1) Technology research and development risks: Industrial software complexity is high, and product upgrades are iterative quickly. If the new technology developed by the company does not meet industry trends and market needs, it may affect the competitiveness of the company's products and adversely affect business development; (2) Geopolitical risk: The company's product sales cover more than 90 countries and regions around the world, and will continue to promote overseas localization strategies. If the international situation deteriorates further in the future, it may affect the company's overseas business development; (3) the risk of increased market competition: foreign competitors such as Dassault, Autodesk, and Siemens still have an overall advantage in the industrial software market competition. If these manufacturers adjust their domestic marketing strategies, the company faces major challenges in continuously increasing its domestic industrial software market share.