Matters:

The company announced its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 2.836 billion yuan, a year-on-year increase of 0.32%, and realized net profit to mother of 29.89 million yuan, a year-on-year decrease of 93.30%.

Ping An's point of view:

The company's revenue side remained stable, and the asset management technology business showed resilience. In the first half of 2024, the company achieved revenue of 2.836 billion yuan, an increase of 0.32% over the previous year. By segment, the fastest growth was asset management technology services. The company's asset management technology line achieved revenue of 0.722 billion yuan, an increase of 9.17% over the previous year, mainly driven by the investment and trading system. Against the backdrop of slowing market demand, the company's Fortune Technology Services achieved revenue of 0.549 billion yuan, a year-on-year decrease of 16.99%, and is under certain pressure. In addition, revenue from the company's operations and institutional technology services/innovation business lines increased by 3.51% and 3.03%, respectively, while revenue from risk and platform technology services/data services/enterprise finance, insurance core and financial infrastructure technology services decreased by 0.25%/3.51%/3.96%, respectively.

The company's overall performance was under pressure, and gross margin declined slightly year over year. In the first half of 2024, net profit to mother was 29.89 million yuan, a year-on-year decrease of 93.30%, and realized deduction of non-net profit of 0.136 billion yuan, a year-on-year decrease of 48.81%. The company's performance is currently under pressure, mainly due to a year-on-year decrease of 0.25 billion yuan and 1.55 yuan, respectively, in the same period last year. In terms of profitability indicators, the company's gross margin for the first half of 2024 was 71.32%, a slight decrease of 0.68 percentage points from the gross margin level of 72.00% in the same period in 2023. The company increased overall control of expenses. The cost rate for the first half of 2024 was 68.09%, down 1.80 percentage points from the same period last year. Behind this, sales expenses ratio, management cost ratio, and R&D expense ratio decreased by 0.95, 0.57, and 0.46 percentage points year-on-year, respectively, to 13.74%, 13.59%, and 40.96%.

The company actively promotes core products, and equity incentives show confidence. In terms of Fortune Technology, the next-generation core system UF 3.0 continues to be iterated, and the benchmark project has reached milestone launch goals. Some leading customers have completed self-management, ETF bond settlement, and pilot launch of the dual finance business. At the same time, many new customers have been signed. In terms of asset management technology, the next-generation investment and transaction system O45 has signed a number of new contracts with leading clients, successfully won the bid for leading trust clients and bank financial management subsidiaries, made significant progress in the construction of a next-generation investment management platform based on IBOR, reached cooperation in the construction of an ABOR-based operating platform, and Summit won the bid for the credit innovation version of the capital system of a major state-owned policy bank. We believe that in the medium to long term, Financial Credit Innovation has entered the deep-water zone, and the company is still expected to fully benefit as a leading IT enterprise in securities asset management. In addition, the company also released the “2024 Stock Options Incentive Plan (Draft)”, which assesses the year-on-year growth rate of deducted non-net profit for the three fiscal years 2024-2026 is not less than 10%, demonstrating management's confidence in the company's long-term development.

Profit forecast and investment suggestions: According to the company's 2024 semi-annual report, we adjusted the company's profit forecast. The company's net profit for 2024-2026 is 1.53 billion yuan (previous value was 1.727 billion yuan), 1.801 billion yuan (previous value was 2.102 billion yuan), and 2.176 billion yuan (previous value was 2.495 billion yuan), corresponding to EPS of 0.81 yuan, 0.95 yuan, and 1.15 yuan, respectively, corresponding to August 26 The daily closing price of PE was 19.3 times, 16.4 times, and 13.6 times, respectively. The company has always maintained a leading position in the market and technology, and technological changes such as big models will also bring opportunities for the company to restructure its business. Furthermore, the company issued the “2024 Stock Options Incentive Plan (Draft)”. The company-level performance assessment requirements demonstrate management's confidence in the company's long-term development. We continue to be optimistic that the company will maintain its leading position in the IT field of securities asset management, as well as breakthroughs in the development of businesses such as next-generation core trading systems and next-generation investment trading systems, and maintain a “highly recommended” rating.

Risk warning: 1) Financial institutions' IT budgets fall short of expectations. Financial institutions' IT investment corresponds to the company's order source. If the customer's IT budget growth is weak, it will drag down the company's performance.

2) The development of the company's Xinchuang business fell short of expectations. Currently, the company's next-generation core system UF3.0 continues to be iterated, the benchmark project has reached the milestone launch target, and many new customers have been signed at the same time. The next-generation investment and trading system O45 has also signed new contracts with a number of leading customers. However, if the expansion of the next-generation core system UF3.0 and the next-generation investment and transaction system O45 in the field of financial credit innovation does not meet expectations, then there is a risk that the company's Xinchuang business will not develop as expected. 3) Uncertainty in financial regulatory policies. The financial industry is far more affected by regulatory policies than most industries. If financial supervision is too strict, it will limit product and service innovation and corresponding business development, and inhibit corresponding IT business growth on the demand side.