Brief performance review

On August 25, 2024, the company disclosed its 2024 interim results: the company achieved revenue of 2.24 billion yuan in the first half of 2024, an increase of 10.9%; realized net profit of 0.12 billion yuan, a year-on-year decrease of 15.4%; net profit without deducting share payment expenses was 0.13 billion yuan, down 9.7% year on year. In the second quarter of 2024, the company's revenue was 1.13 billion yuan, up 10.3% year on year; net profit after deducting non-return to mother was 0.07 billion yuan, down 17.4% year on year.

Management analysis

By business, the best growing sectors were customer service and digital marketing, IT infrastructure services, and software products and solutions, which grew by 36.4%, 36.2%, and 11.6% year-on-year respectively in the first half of the year. We believe that it is mainly due to increased demand for digital marketing from non-financial institution customers, and the company is actively expanding small and medium-sized banks and non-financial customers, so there is excessive growth compared to the industry. The two businesses of software and digital transformation services, data processing, and business processing were under pressure. The first half of the year increased by 5.7% and -3.2%, respectively. We believe that it is mainly due to companies actively adjusting their business structure, so the two businesses are under pressure.

In terms of expenses, the company's costs and three fees increased 12.8% year-on-year in the first half of the year, mainly due to the rapid increase in managers' remuneration. Credit impairment and asset impairment losses totaled -0.036 billion yuan, but the year-on-year increase was only 4.0%, slower than revenue growth, and more manageable. In addition, value-added tax relief and various subsidies have been reduced in the current period, so other benefits have also been reduced accordingly.

Considering changes in the external market environment and in line with adjustments in its own development plan, the company decided to withdraw the 1.13 billion convertible bond issuance application.

Profit Forecasts, Valuations, and Ratings

According to the 2024 mid-year report, we expect revenue from 2024 to 2026 to be 4.7/5.18/5.67 billion yuan, up 10.8%/10.2%/9.4% year on year; net profit to mother will be 0.34/0.38/0.44 billion yuan, respectively, up -2.4%/13.2%/13.5% year over year, corresponding to 19.9/17.5/15.5 times PE, maintaining a “buy” rating.

Risk warning

Banks' IT investment falls short of expectations; industry competition increases risks; capital raising falls short of expectations; executives and major shareholders risk reducing their holdings.