Incident: The company released its 2024 mid-year report, achieving operating income of 0.814 billion yuan (YoY +7.45%), net profit to mother of 0.088 billion yuan (+0.86% YoY), and deducting non-net profit of 0.083 billion yuan (+17.81% YoY).

B-side: The three-tier service value system for the digital finance and taxation service cloud business effectively lowers the threshold of enterprise finance, taxation and digital intelligence, and helps the company's B-side business grow steadily. In the context of the “governing taxation by numbers” industry, the company is seizing industry opportunities and building a three-tier service value system from fiscal and taxation practices and tax compliance advantages to financial management, and driving the upgrading of the fiscal and taxation service industry with “digital tools+professional consulting services”. The company increases volume and price through two measures: on the one hand, it increases market share through fiscal and taxation practice SaaS products; on the other hand, it continuously improves its tax-compliant SaaS products, creates a more professional and complete service value system, and increases ARPU value. 2024H1, the company's digital intelligence finance and tax service cloud business achieved revenue of 0.555 billion yuan (YoY +10.4%), net profit of 0.147 billion yuan (YoY +11.0%), and a net interest rate of 26.5%.

We believe that the market penetration rate and popularity of digital products, fiscal risk and compliance-related services for the company's corporate finance and taxation practices is expected to rise.

G-end: The core contractor of Gold Tax Phase IV is in a stable position, exploiting data element development capabilities to achieve business transformation. At present, the company has successively been shortlisted for core projects such as the electronic invoicing service platform, application support service platform, and tax agent system of the State Administration of Taxation, further consolidating and enhancing its position in the industry. At the same time, with its rich forward-looking business research and development capabilities and leading tax data element value development capabilities, the company is actively expanding its business to government departments such as human resources, social affairs, finance, etc., to transform and upgrade the digital government business from a project service model to a data service model.

2024H1, the company's digital government business achieved revenue of 0.257 billion yuan (+2.1% year over year). We expect that the revenue growth rate of the company's G-side business will continue to recover. At the same time, considering the pre-payment of G-side expenses, the net interest rate is also expected to improve to a certain extent.

The company accelerates the development and application of large fiscal and taxation models, and is expected to achieve large-scale expansion of high-value services. The company focuses on AIGC technology investment, increases investment in vertical models in the field of finance and taxation, and trains various fine-tuning models based on pre-training and fine-tuning data in the fiscal and taxation field with tens of billions of tokens. Currently, it has formed a large fiscal and taxation model group with independent intellectual property rights, and the entire chain empowers the application of the three-tier value system. We believe that the company's B-side fiscal and taxation digital service business is expected to expand its competitive advantage by using the big language model in the field of finance and taxation, build a large platform for the fiscal and taxation service ecosystem, provide differentiated, high-quality, and high-experience professional services to a huge number of enterprises and individual users, and achieve large-scale expansion of high-value services.

According to the company's 2024 mid-year report, operating income and gross profit margin were lowered, and the cost ratio was lowered, and the company's earnings per share for 2024-2026 were 0.35 yuan, 0.55, and 0.77 yuan respectively (the original forecast earnings per share were 1.00 and 1.25 yuan). We are optimistic about the company's B-side and G-side business growth space. Using the absolute valuation method (FCFF), we obtained a target price of 29.34 yuan to maintain the purchase rating.

Risk warning

Risk of changes in tax policies; risk of profitability falling short of expectations; risk of market development.