Yuxin Technology: A leading bank IT leader that has been deeply involved for 20 years.
1. Development history: Leading bank IT solution service provider, leading market share in multiple segments. Since its establishment in 1999, Yuxin Technology has been serving financial institutions, mainly banks; since 2010, the company has been leading the IT solutions market in the Chinese banking industry for many years, and has always maintained a leading position in segments such as credit operations, business intelligence, online banking, and channel management.
2. Performance: Steady operation with an average annual increase of 11% in net profit in the past 5 years. In recent years, the company has adapted to the trend of credit innovation and the digital economy, achieving steady business development, achieving revenue of 5.2 billion yuan/19% CAGR in the past five years; net profit declined due to external factors in 21-22, and net profit performance returned to the right track, achieving net profit of 0.33 billion yuan/year over year +29% /CAGR 11% in the past five years.
Industry trends: Xinchuang and digital transformation are advancing at an accelerated pace, and 24-25 will be the peak period for bank IT investment.
1. Industry Overview: Bank IT is developing steadily, maintaining the prosperity of some segmented tracks, and deepening the competitive landscape. The scale of IT solutions in China's banking industry in '22 was 64.88 billion yuan/+10% /CAGR 18% in the past ten years; looking at the segmented circuit, the IT input-output ratio is more important under pressure from bank operations. In recent years, credit systems, internet credit, and transaction banks with high business relevance have become the main IT investments. Looking at the competitive landscape, there are many participants in the industry, different IT companies have their own business focus, and the market pattern is scattered; in '22, Uxin Technology Bank's IT solution market share reached 4.36%/ranking second in the industry.
2. Industry-driven: Xinchuang and digital transformation are advancing at an accelerated pace, and 24-25 is the peak period for bank IT investment. In terms of digital transformation, it is the main force in digital transformation. IT spending was strong under industry fluctuations. State-owned banks and stock banks invested 8% and 9% in IT in 20-23; the digital transformation of small and medium-sized banks is still in a period of growth, and demand for core and channel systems is high, which is expected to bring growth to the banking IT market. According to financial credit innovation, credit creation in the financial sector has moved from a pilot promotion period to a full construction period. Leading stock banks and major state-owned banks have already upgraded more than one-third, and core system replacement has been initiated; while small and medium-sized banks have accelerated their credit creation rate and maintained a high level of banking IT prosperity.
Company focus: The business layout is upright and new, poor personal loans, and going overseas opens up room for growth.
1. Product & customer structure: The four major product lines maintain the leading position in the industry, and the customer structure is balanced. On the product side, the company fully covered the four major product lines of credit, data, channel, and supervision. The market share in '22 was 3.05%, 3.86%, 6.33%, and 4.97%, respectively, and ranked first in credit operating systems and online banking. Client, the company's major state-owned banks and stock banks, small and medium-sized banks, agricultural credit cooperatives, non-banks and other customers contributed 51%, 34%, and 15%, respectively; the company achieved full coverage of policy banks and large commercial bank customers, and relied on its accumulated standard cases and project experience in the fields of digitalization and credit innovation to actively explore the sinking market for SME banks and non-bank institutional customers.
2. Advantages of Xinchuang: Xinchuang has outstanding capabilities and can fully meet the localization needs of financial institutions. In recent years, against the backdrop of increased operating pressure, the company has maintained its strategic strength, focusing on R&D investment in Xinchuang and large models; 23 years of R&D expenses were 0.57 billion yuan/year-on-year +14% /R&D cost ratio of 10.9%. At the same time, the company continued to improve its domestic adaptability. At the end of '23, the company completed 333 product compatibility certification, covering 121 products in the core product line, forming a nationwide production support capability from chips, operating systems, databases to applications; in '23, the company's revenue related to Xinchuang was 1.72 billion yuan/CAGR of 24% in the past 5 years.
3. Personal loan business: Develop the blue ocean market for poor personal loans and create a new driver for growth. In December '23, the company signed a strategic cooperation agreement with Xiamen Asset Management to establish a strategic partnership in the field of non-performing assets; as a financial IT leader covering more than 450 banks, Yuxin Technology has extensive experience in bank personal loan business, and has big data and AI technical capabilities. It is expected to empower asset management institutions at the three ends of asset evaluation, operation, and disposal, and has great business potential.
4. Seize the digital IT development opportunities of the Bank of Southeast Asia and actively expand overseas business layout. Yuxin Technology has always adhered to the “one, two wings” strategy. Since 2019, it has continued to expand overseas business and accelerate horse racing in the Southeast Asian market; the company's overseas business revenue in '23 was 0.012 billion yuan/5 times higher than in '21. Currently, it has received good feedback in markets such as Singapore, Cambodia, Indonesia, and Hong Kong. Subsequent companies will further explore business opportunities in other ASEAN countries, and overseas market orders can be expected to continue to land.
Give the company a “Highly Recommended” rating. 2024-2026E Yuxin Technology's revenue is estimated to be 5.62, 6.02, and 6.4 billion yuan, respectively, +8%, +7%, and +6% year-on-year; 2024-2026E's net profit to mother is expected to be 0.37, 0.41, and 0.44 billion yuan, +14%, +10%, and +7%, respectively. The 24/7/18 closing price corresponds to the 2024-2026E dynamic PE valuation of 19.7x, 18.0x, and 16.8x.
Risk warning: Bank IT market development falls short of expectations; industry competition intensifies; risks in the quality of technology and product development.