Multiple companies in the industrial software sector achieved revenue growth in the third quarter, in the face of the upcoming implementation of the national software development strategy, it is recommended to focus on leading companies with good downstream expectations and obvious advantages in domestic substitution.
According to the intelligent finance APP, China Galaxy Securities released a research report stating that a series of policies to be introduced by the Ministry of Industry and Information Technology will promote the large-scale application of 5G and the high-quality development of the industrial internet, including mainly policies on the development of 'dual gigabit' networks, research and development of key core technologies, deep integration of the real economy, enhancement of data security capabilities, and the opening up of the telecommunications industry. Multiple companies in the industrial software sector achieved revenue growth in the third quarter, in the face of the upcoming implementation of the national software development strategy, it is recommended to focus on leading companies with good downstream expectations and obvious advantages in domestic substitution.
China Galaxy Securities' main points are as follows:
Market Review:
During the week of (10.21-10.27), the CSI 300 index rose by 0.79%, the Chinext Price Index rose by 2.00%, the computer (ZX) sector fell by 0.78%, and the industrial software sector fell by 2.81%. The top five individual stock price increases in the industrial software sector were: Shanghai Weihong Electronic Technology, Nancal Technology, Diglog Software, HuaDa JiuTian, and Shanghai Hi-Tech Control System; the top five individual stock price declines were: Pusen Software, Guangzhou Sie Consulting, Zhejiang Supcon Technology Co., Ltd., Shanghai Friendess Electronic Technology Corporation, and Zhongwang Software.
Facing new opportunities, the Ministry of Industry and Information Technology will implement the national software development strategy to promote the high-quality development of the software industry.
At the 26th China International Software Expo, Zhao Zhiguo, Chief Engineer of the Ministry of Industry and Information Technology, reported on the rapid growth of China's software industry, with a year-on-year increase of 11.2% in software business revenue from January to August 2024. Emerging areas such as cloud computing, big data, and artificial intelligence are developing rapidly, with breakthroughs in basic and industrial software reaching some international advanced levels. Open source projects such as Harmony OS and Euler Open Source promote technology integration. The digital transformation of the manufacturing industry is accelerating, and software solutions support enterprises to enhance their capabilities, with over 0.038 million large-scale enterprises. Software parks and public service systems are being optimized, and the industrial development environment is improving.
Industrial software sector third quarter report tracking: As of October 27, 8 out of 20 industrial software companies have released their 2024 third quarter reports.
During the reporting period, in terms of revenue, 7 out of the 8 companies saw growth, with five of them achieving revenue growth rates exceeding 10%, mainly by Shanghai Friendess Electronic Technology Corporation (+31.19%), Guangzhou Sie Consulting (+18.15%), Nanjing Sciyon Wisdom Technology Group (+16.16%), Shanghai Hi-Tech Control System (+12.22%), and Zhejiang Supcon Technology Co., Ltd. (+11.58%); As for net income attributable to the parent company, all 8 companies were profitable, with 6 of them showing growth, with 4 companies having growth rates exceeding 20%, namely, Pinming Technology (+189.97%), Unistrong Software (+148.36%), Nanjing Sciyon Wisdom Technology Group (+75.34%), and Shanghai Friendess Electronic Technology Corporation (+26.84%); Regarding gross margin, the average gross margin was 56.43%, slightly down from last year, with 4 companies showing an increase in gross margin; The average ROE was 5.05%, up 0.81 percentage points from the same period last year; Regarding expenses, the average expense ratio was 45.52%, a decrease of 1.75 percentage points from the same period last year, with Unistrong Software (-25.80 percentage points) and Pinming Technology (-14.93 percentage points) demonstrating significant cost control effects.
Investment suggestions: Shanghai Friendess Electronic Technology Corporation (688188.SH), Nanjing Sciyon Wisdom Technology Group (002380.SZ), Zhejiang Supcon Technology Co., Ltd. (688777.SH), Digiwin Software (300378.SZ), Nancal Technology (603859.SH), etc.
Risk warning: Risks of policy advancement falling short of expectations; Risks of downstream industry sentiment falling short of expectations; Risks of R&D and product updates falling short of expectations.