Core views

In the first half of 2024, the company achieved operating income of 0.781 billion yuan, a year-on-year increase of 6.53%; realized net profit of 0.118 billion yuan, a year-on-year decrease of -52.92%, which was dragged down by income from changes in the fair value of industrial investment funds held by the company; after deducting non-recurring profit and loss, the company achieved profit of 0.123 billion yuan, an increase of 6.58% over the previous year. By business line, the company's three major business lines have all achieved growth, covering customers including leading companies such as China Mobile, HUAWEI CLOUD, China Southern Power Grid, China Insurance, and Bank of China. Furthermore, the company Xinchuang and the AI industry are developing on both sides. On the one hand, they officially signed a contract with Huawei and reached a Hongmeng cooperation; on the other hand, they are further promoting the development of AI email. We believe that as the company continues to increase investment in R&D and further promote AI email products and Huawei's Hongmeng business, the company's performance is expected to recover. The company's revenue for 2024-2026 is estimated to be 1.648/1.899/2.186 billion yuan respectively, up 10.13%/15.20% /15.16% year on year, and net profit to mother of 0.326/0.398/0.478 billion yuan, up 0.30%/22.25%/20.17% year over year, corresponding to 19/15/13 times PE, maintaining a “buy” rating.

occurrences

The company announced its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 0.781 billion yuan, a year-on-year increase of 6.53%; achieved net profit of 0.118 billion yuan, a year-on-year decrease of -52.92%; and realized net profit deducted from non-mother of 0.123 billion yuan, an increase of 6.58% year-on-year.

In the second quarter of 2024, the company achieved operating income of 0.357 billion yuan, a year-on-year increase of 2.01%; realized net profit attributable to mother of 0.034 billion yuan, a year-on-year decrease of -81.98%; and realized net profit without deduction of 0.053 billion yuan, a year-on-year decrease of -11.14%.

Brief review

Revenue grew steadily, and R&D investment remained high

In the first half of 2024, the company achieved operating income of 0.781 billion yuan, a year-on-year increase of 6.53%; realized net profit of 0.118 billion yuan, a year-on-year decrease of -52.92%, which was dragged down by the company's Henan Lantian Xinchuang Industrial Investment Fund. The current fair value change income was -23.8954 million yuan; after deducting non-recurring profit and loss, it achieved profit of 0.123 billion yuan, an increase of 6.58% year on year. In the first half of 2024, the company's sales/management/R&D/finance expense ratios were 2.27%/3.56%/20.52%/-1.25%, respectively, -0.74/-0.53/+4.13/ -0.03pp, respectively, and R&D investment remained high.

Serving leading customers, all three business lines have achieved growth. By business line, in the first half of 2024, the company's collaborative office product line achieved revenue of 2.4.5 billion yuan, an increase of 13.22%; the smart channel product line achieved revenue of 0.308 billion yuan, an increase of 1.46% year on year; and the cloud and big data product line achieved revenue of 0.189 billion yuan, an increase of 11.57% year on year. The company's three major business lines all achieved year-on-year growth, covering customers including leading companies such as China Mobile, HUAWEI CLOUD, China Southern Power Grid, China People's Insurance Company, and Bank of China. Among them, the main projects in the smart channel, cloud, and big data product line include the development of the Hongmeng version of the China Mobile App Application System, Unicom Music and Video Ring and New Communications Operation Support Project, the Online Travel Expo construction project, the Southern Network artificial intelligence development and consulting service project, and the China Life Insurance (overseas) cloud computing technology service project.

A contract was signed with Huawei to help Hongmeng's native development and further implement AI products. In the field of Xinchuang, the company officially signed a contract with Huawei in the first half of 2024 and reached a cooperation with Hongmeng. On the one hand, it supports the normal operation of its own email products in the new Hongmeng system to meet the coverage of the Xinhongmeng platform; on the other hand, it has built a complete Hongmeng app development integration framework covering multiple dimensions such as development, testing, operation and maintenance, operation, and monitoring to create a complete Hongmeng App client technology architecture system to support customers in developing various Hongmeng mobile apps. In the field of AI, the company's AI email was further advanced in the first half of the year, supporting customers to develop personalized AI functions such as AI text-assisted writing, intelligent classification and filing, intelligent response, and intelligent security monitoring; building multimedia digital employee products based on the company's one-stop AI application development platform Rich AIBox; supporting customers to develop AI functions for C-end cloud products to achieve more than 20 kinds of AI algorithms, including portrait animation, document classification, image segmentation, etc.

Investment advice: As the company continues to increase investment in R&D and further promote AI email products and Huawei's Hongmeng business, the company's performance is expected to recover.

We expect the company's revenue for 2024-2026 to be 1.648/1.899/2.186 billion yuan, respectively, up 10.13%/15.20%/15.16% year on year, and net profit to mother of 0.326/0.398/0.478 billion yuan, up 0.30%/22.25%/20.17% year over year, corresponding to 19/15/13 times PE, maintaining the “buy” rating.

Risk analysis

(1) Market competition risk: As the number of new entrants to the domestic software market increases, the company will face more intense competitive pressure. If the company cannot continue to maintain its advantages in terms of technology level, cost control, market expansion, etc., the company's profitability and market share will be greatly affected; (2) technology research and development risks: the company has continued to increase investment in R&D in recent years. If the company makes mistakes in grasping the direction of technology development and new product development, it may lead to a decline in the company's competitiveness and business performance; (3) the risk of large accounts receivable and contract asset balances: as of June 30, 2024, the total net balance of accounts receivable and contract assets, accounting for 0.839 billion yuan The total asset ratio at the end of the period was 25.39%. If accounts receivable and contract asset payments cannot be recovered, the quality of the company's assets and financial position will be greatly adversely affected.