The company announced 1H24 results, which met our expectations

1H24's revenue was 2.836 billion yuan, +0.32% YoY; net profit attributable to mother was 0.03 billion yuan, -93.30% YoY; net profit not attributable to mother was 0.136 billion yuan, or -48.81% YoY. 2Q24's revenue was 1.648 billion yuan, a year-on-year decrease of 2.88%; net profit to mother was 0.066 billion yuan, -70.56% year over year; net profit without return to mother was 0.114 billion yuan, or -39.97% year over year. The results were in line with our expectations.

Development trends

Demand continues to be pressured, and asset management IT provides support. 1H24's revenue was 2.836 billion yuan, of which revenue from Fortune Technology Services/Asset Management Technology Services was 0.549 billion yuan/0.722 billion yuan, compared to -16.99%/+9.17%. The main business slowdown was mainly due to the slowdown in current demand from securities companies, unreleased domestic replacement demand, and increased competition; Yunyi's revenue in the innovative business was +20%, and the revenue of the rest of the subsidiaries was divided.

1H24's cash flow from sales of goods and provision of services was 2.249 billion yuan, -6.82% year-on-year; contract debt was 1.954 billion yuan, compared to -20.04% at the end of 2023, and orders and cash flow were slightly under pressure.

The profit side is dragged down by profit and loss due to changes in fair value, and the profitability of the main business is stable. 1H24's gross profit margin was 71.32%, which remained stable. The gross profit margin for data/innovation business was -4/-6ppt; the net profit margin was 1.05%, year-on-year, -14.74ppt, mainly due to large changes in the fair value of winning times, increased impairment of accounts receivable, reduction in government subsidies, and losses in joint ventures. At 1H24, the number of companies was 12,700, -3.7% compared with the end of 2023. Overall costs and expenses decreased by 0.66% year on year, and cost reduction and efficiency were effective.

Leading financial IT products have an advantage in competitiveness, and 2024 equity incentives were announced. Next-generation UF3.0 completed self-management and ETF bond launch in some leading customers, and UF3.0 and memory transactions completed new signings for many customers; next-generation O45 successfully won the bid for leading trust customers and bank financial management subsidiaries.

The summit won the bid for a domestic alternative version of the capital system of a major state-owned policy bank, creating a benchmark case for domestic substitution. On August 23, the company released a draft equity incentive plan to grant 34 million stock options (1.80% of the total share capital) to incentive recipients, covering 1,400 employees including executives and core business personnel. The initial grant price was 17.04 yuan/share. The current equity incentive is based on net profit. The net profit target values for 2024 to 2026 are based on the net profit of the previous year, respectively, with a growth rate of not less than 10%.

Profit forecasting and valuation

Considering the delay in financial IT demand, we lowered our 2024/2025 profit forecast by 31.7%/35.9% to 1.104/1.233 billion yuan. We believe that the company's basic market is still stable and maintains an outperforming industry rating. We lowered our target price by 31% to 20 yuan, corresponding to 29x/26x 2024e/2025e P/OCF, which has 27.4% upside compared to the current stock price. Currently trading at 23x/20x 2024e/2025e P/OCF.

risks

The digital transformation trend falls short of expectations, market competition intensifies, and the AI layout falls short of expectations.