Key points of investment:

Revenue has grown steadily, and profitability has improved markedly. In 2023, the company achieved operating income of 10.544 billion yuan, an increase of 11.39%; net profit to mother of 74 million yuan, an increase of 417 million yuan, turning a loss into a profit; net profit after deducting non-return to mother - 147 million yuan, an increase of 271 million yuan; according to the financial indicators determined by the company's 2024 Stock Options Incentive Plan, the company achieved net profit of the main business of 356 million yuan in 2023; the company's gross profit margin in 2023 was 24.20%, an increase of 3.42 pct year on year. In the first quarter of 2024, the company achieved operating income of 1,830 billion yuan, an increase of 10.50% year on year; net profit to mother was 5.2525 million yuan, an increase of 3.83% year on year.

The health business maintained a high growth rate of 30%, focusing on the construction of county medical communities. In 2023, the company's healthcare and social security business revenue was 2,571 billion yuan, up 29.74% year on year, and gross margin reached 35.55%, up 4.04pct year on year. In 2023, the company signed nearly 20 multi-million-level projects covering the key field of “smart hospitals”, established a number of national model cases of county medical community construction, and already has the conditions to replicate and promote them. As the connotation of the new medical reform, the county medical community is also the focus of Neusoft's health business. The company provides products and overall solutions for the informatization construction of hospitals at all levels, the construction of medical community information platforms, the digital transformation information construction of the Health and Health Commission, and the construction of public health service systems. In 2023, the company undertook several new medical community construction projects in Tongzhou District, Kulun Qi, Etuoke, Yiliang County, and Liuwu New District. By the end of 2023, the company had served more than 40 medical community customers, helped pilot the construction of a national-level close medical community, and established a series of national model cases for the construction of multiple medical communities. Among them, Dancheng was selected as a “National Close County Medical Community Practice Case” twice as a national model project, and has the core competitiveness of subsequent volume. In April 2024, the company officially released the “8+1" innovative county medical community solution, namely “insurance coverage empowerment, primary care empowerment, operation management empowerment, discipline construction empowerment, pharmaceutical distribution empowerment, data element empowerment, digital platform empowerment, smart device empowerment” and a digital infrastructure, which fully integrates Neusoft's concept of building AI enabling, data valuing, and service solutions.

The field of people's livelihood is rich, and it is expected to lead the valuable release of data elements. Neusoft has now jointly formed data companies with the governments in Shenyang and Jinzhou, etc., and has begun operations one after another, actively promoting the development of the digital economy of urban healthcare and human resources driven by data elements. In addition, the company is deeply involved in the national platform and health insurance data governance work in various provinces and cities such as Hainan, Inner Mongolia, Suzhou, and Nantong, exploring the construction of medical insurance knowledge models based on AIGC, participating in the design and launch transaction of “health insurance data products” in data product supermarkets in Hainan Province. The company's “OCR Intelligent Identification Service for Medical Insurance Bills” and many other data products have been listed and traded on the Guizhou Data Exchange.

Continued expansion of smart vehicle cooperation with domestic and foreign car manufacturers to increase overall shipments. In 2023, the company achieved revenue of 3,916 billion yuan in the smart car connectivity sector, up 9.36% year on year, and gross margin reached 15.34%, up 0.28 pct year on year. In 2023, the company continued to receive fixed orders from mainstream domestic car manufacturers such as BYD, Geely, Changan, FAW, SAIC, and Great Wall, and continued to expand cooperation with overseas car manufacturers such as BMW, Proton, and Volvo, and overall shipments continued to increase. The company received orders from BYD for T-Box for related models in overseas markets and fixed targets for navigation products; undertook BMW's front-loading RTM R&D project; Proton's first new energy model X90, equipped with Neusoft smart cockpit products, was mass-produced and launched in Malaysia; and Volvo's all-electric SUV EX30 equipped with Neusoft T-Box/5GBox products achieved global mass production and delivery. The next-generation smart cockpit platform developed based on Qualcomm's fourth-generation Snapdragon 8295 chip was first installed in two strategic models, the Jieyue 01 and Geely Galaxy E8, in 2023, and has already been mass-produced and marketed.

Profit forecasting and investment advice. We believe that the company maintains a leading edge in the field of health and smart car connectivity, and has also performed well in core segments. We are optimistic that the company will continue to lead technology and product innovation, and profitability is expected to further improve. We expect the company's 2024-2026 revenue to be 118.36/135.09/15.672 billion yuan, net profit to mother of 2.91/4.72/626 million yuan, and EPS 0.24/0.39/0.52 yuan respectively. Considering the company's overall health ecosystem and broad market space for valuing data elements, the company was given 42-45 times the 2024 dynamic PE, with a reasonable value range of 10.08-10.80 yuan, maintaining a “superior to the market” rating.

Risk warning. Downstream demand falls short of expectations; innovative businesses continue to lose money.