Incident review

On October 19, 2024, the company announced the shareholding increase and repurchase plan. CLP Haikang Group, the controlling shareholder of the company, plans to increase its holdings by 0.2-0.3 billion yuan within the next 6 months, and the concerted actor, CLP Investment Holdings plans to increase its holdings by 0.1-0.2 billion yuan. At the same time, the chairman of the company proposed to repurchase 2-2.5 billion yuan of the company's shares, all of which will be used to cancel the company's registered capital.

Incident analysis

Over the past 24 years, management/majority shareholders have increased their shareholding several times, demonstrating confidence in long-term development.

Prior to this announcement, since the beginning of this year, the company's management and majority shareholders have increased their holdings by about 1,165, 60, and 1.95 million yuan respectively, for a total increase of about 0.614 billion yuan. The company's last repurchase plan was released in September 2022. The size of the repurchase plan was about 20 to 2.5 billion yuan, which is consistent with the current repurchase amount. At that time, the company's valuation level was only 17~18X, which is comparable to the current valuation level.

It has both growth and dividend logic, and profit-side growth and resilience go hand in hand with high cash dividend rates.

1) Growth: On the revenue side, the company's innovative business+overseas+ EBG drives growth; SMBG recovers weakly; PBG bottoms out, and the short to medium term domestic demand side is expected to bottom out with the local debt process, benefiting from the digital intelligence transformation and upgrading process of enterprises and governments in the long term. On the profit side, with the exception of the 22-year special year, the company's net profit maintained continuous positive growth. During the company's softening process, software contributed to excess gross profit margin, Al Guanlan's big model reduced costs and efficiency, and overseas business maintained a good growth rate and gross profit, working together to support profit-side resilience. We believe that the company's 22-24 net profit margin was affected by negative scissor differences in gross margin and expense ratio. In the future, it will recover to a historically reasonable net interest rate level with measures such as recovering demand, optimizing the business structure, and reducing personnel costs and increasing efficiency, which may bring about better profit elasticity than the revenue side growth rate.

2) Dividends: In more than ten years of listing, the company has always insisted on giving back high dividends to shareholders. Since 2015, the cash dividend rate has been above 48%, and has increased to 59.5% in 2023. The current dividend rate corresponding to 23 dividends is about 3.1%, ranking among the leaders in A+H technology.

Profit Forecasts, Valuations, and Ratings

We maintain the company's profit forecast. We expect revenue for 24-26 to be 974.9/1, 095.1/1, 24.56 billion yuan, respectively, net profit to mother of 14.36/17.88/21.58 billion yuan, and EPS of 1.56/1.94/2.34 billion, respectively.

Risk warning

The risk that domestic macroeconomic recovery falls short of expectations; the risk of a tightening geopolitical environment; and the risk of exchange rate fluctuations.