Incidents:

The company released its 2024 semi-annual report on August 29, 2024. During the reporting period, the company achieved operating income of 4.707 billion yuan in the first half of the year, an increase of 29.45%; achieved net profit attributable to shareholders of listed companies of 0.498 billion yuan, a year-on-year increase of 5.20%; and realized net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss of 0.44 billion yuan, an increase of 6.73% over the previous year.

Opinions:

Mergers and acquisitions and the expansion of the urban intelligence business have boosted revenue growth, and the amount of new contracts signed in the international market has increased dramatically. During the reporting period, the company achieved a 29.45% year-on-year increase in total revenue, mainly due to the increase in the size of the merger and acquisition of CICC Payment, CCIC Smart Exchange business and urban intelligence business in the previous year. Affected by the slow pace of delivery of international smart device orders in the first half of the year, the company's international business revenue decreased by 27.21% year-on-year. However, at the same time, the amount of new contracts signed by the company in the international market exceeded 1 billion yuan in the first half of the year, and there are plenty of orders on hand, and the international business is expected to resume growth in the second half of the year.

The leading position of smart financial equipment is stable, accelerating the international business layout. The 2024 semi-annual report shows that the company's fintech business achieved revenue of 3.028 billion yuan, an increase of 29.30% over the previous year, and the growth rate is impressive. In terms of industry position, the company has ranked first in the domestic smart financial equipment market share for 16 consecutive years, and its business scope covers more than 120 countries and regions around the world. In recent years, the company's international business has continued to expand. With 2024H1, the amount of new contracts signed in the international market has increased dramatically, while gross margin increased by 7.55% over the same period last year. As the company makes breakthroughs in key and empty markets, international business is expected to continue to contribute to revenue and profit growth.

With a forward-looking layout of the data element industry, the urban intelligence business is expected to continue to accelerate. 2024H1, the company's urban intelligence business achieved revenue of 1.678 billion yuan, a year-on-year increase of 29.71%, and achieved relatively rapid growth. The company focuses on the fields of digitalization of government and enterprise, mass transportation, smart security, etc., and forwardly lays out the data element industry. It continues to make efforts in the fields of digital government and smart transportation, and is expected to benefit from digital transformation and the development of the integrated vehicle-road cloud industry.

Actively promote investment and mergers and acquisitions, and Wuzhou Holding Radio and Television continues to deepen its computing power layout. The company's 2024 semi-annual report shows that in August 2024, the company became a shareholder of Radio and Television Wuzhou Holdings.

Radio and Television Wuzhou has become one of the key strategic partners in the complete server business of Huawei Kunpeng and Shengteng. It achieved revenue of 1.298 billion yuan in 2023, which is expected to keep up with the wave of domestic computing power replacement and Xinchuang to help the company optimize its revenue structure.

Profit forecast and investment rating: In the fintech business, the company benefits from the leading position in domestic smart financial equipment and the acceleration of overseas business expansion, and revenue is expected to grow steadily. In terms of the urban intelligence business, the company has made a forward-looking layout in various fields, and some business segments are expected to further unleash performance flexibility. In summary, we expect the company's net profit to be 1.102/1.256/1.437 billion yuan in 2024-2026, and 20.6/18.1/15.8 times PE in 2024-2026, respectively. Compared with comparable companies Yunsai Zhilian (600602.SH) and Shenzhou Information (000555.SZ)'s average PE of 40.0/32.5/25.7 times in 2024-2026, the company's valuation was lower than the average valuation of comparable companies. It was covered for the first time, and a “gain” rating was given.

Risk warning: increased competition in the fintech sector; risk of exchange rate fluctuations; technological innovation falling short of expectations; progress in digital business falling short of expectations; risk of impairment of goodwill.