Event Overview:
On July 31, Xindian Software issued the “Voluntary Disclosure Notice for 2024 Semi-Annual Results Forecast”. According to preliminary estimates by the company's finance department, the first half of 2024 is expected to achieve operating income of 0.776 billion yuan, a year-on-year decrease of 14.94%; net profit to mother is estimated to be -26.8499 million yuan to -17.9 million yuan, which is a narrowing loss compared to the same period last year.
Gross margin increased significantly, strengthening cost reduction and efficiency and the revenue side of accounts receivable management. In the first half of the year, the company expects to achieve operating income of 0.776 billion yuan, a year-on-year decrease of 14.94%. The decline in revenue is mainly due to tight customer budgets, extended project approval cycles, and delays in delivery and acceptance of some projects. The company's revenue in the first quarter fell 14.92% year on year. Overall, the growth rate of Q2 and Q1 remained consistent.
In terms of profitability, the company increased the added value of products and services through continuous research and development, increased market competitiveness, and maintained a good level of product profitability. The gross margin increased by about 5 percentage points year-on-year during the reporting period. Due to the strong seasonal characteristics of the company's performance, net profit loss in the first half of the year was relatively small and costs continued to occur, resulting in net profit loss in the first half of the year. Net profit due to mother -26.85 million yuan to -17.9 million yuan. The loss margin decreased by 68.22% to 78.81% year-on-year, after deducting non-attributable net profit - 87.6174 million yuan to -58.4116 million yuan, and the loss margin decreased by 42.20% to 61.47% year on year. Management attaches importance to improving operational quality and management efficiency, strengthening the control of various costs and expenses through digital means, continuously optimizing processes, reducing labor costs, and improving quality and labor efficiency. As a result, net profit losses have narrowed compared to the same period last year.
In terms of cash flow, the company adopted a series of measures to strengthen the management of accounts receivable. In the first half of the year, it achieved a collection of 0.942 billion yuan, and the net cash flow from operating activities was superior to the same period last year.
Government data elements have great potential for growth. Recruiting SaaS to rapidly expand and focus on the core business of digital government, continue to increase intelligent R&D and data service transformation of one-network communication, one-network management, and one-network collaborative products, and carry out related exploration of data element operations. According to the annual report, it undertook more than 1,400 projects in 2023, covering 31 provinces, municipalities directly under the Central Government and autonomous regions. In terms of One Network Access, the company has focused on building benchmark projects such as the “Chongqing Express Office” platform for the Chongqing Digital Government, the “One Enterprise to Run” enterprise integrated service platform in Jiangsu Province, and the “Blockchain+Government Service” in Wuhou District of Chengdu. In terms of network management, the company focuses on building various demonstration models such as the 12345 hotline platform in Jilin Province, comprehensive supervision of the Beijing Economic Development Zone, and the Longgang Data Analysis Center.
The company firmly implements the established strategy of expanding enterprise customers, creates a new electronic procurement bidding circuit, and continues to promote the application and application of AI models in industry segments. Based on the AI model, the continuous operation capability in terms of enterprise services and data elements, explore the SaaS operation model based on competency services to achieve business model transformation and upgrading. According to the annual report, the SaaS platform “Xindian Electronic Trading Platform” built by the company in 2023 added 85 special zones; the number of platform transaction segments increased by 41% year-on-year.
Investment advice
Xindian Software is a leading enterprise in the digital transformation of government and enterprises. We expect the company's revenue from 2024 to 2026 to be 2.56/2.772/3.015 billion yuan, respectively, and net profit to mother of 0.227/0.288/0.34 billion yuan, respectively. First coverage, giving a buy-A investment rating. The 6-month target price is 24.08 yuan, which is equivalent to a dynamic price-earnings ratio of 35 times in 2024.
Risk warning:
Government investment in informatization falls short of expectations; risk of increased market competition; SaaS platform promotion falls short of expectations.