Dameng Data's 3Q24 net profit increased 58.6% year on year, exceeding market expectations. The company announced the results for the first three quarters of 2024: revenue increased 41.0% year over year to 0.629 billion yuan; net profit to mother increased 47.5% year over year to 0.174 billion yuan; net profit after deducting non-net profit increased 45.9% year on year to 0.159 billion yuan. Single quarter: Revenue increased 74.5% year over year to 0.278 billion yuan, up 49.2% month on month; net profit to mother increased 58.6% year over year to 0.071 billion yuan, up 49.7% month on month; net profit after deducting non-net profit increased 50.2% year on year to 0.064 billion yuan, up 44.0% month on month. Benefiting from the continued implementation of the localization business, the company's performance exceeded market expectations.

Development trends

High revenue growth and expense management help release profits. In the first three quarters, the company's total three expenses increased 18.2% year on year to 0.417 billion yuan, and the sales/management/R&D expenses rate decreased by 7.9/1.5/3.3ppt to 33.6%/10.2%/22.5% year on year; in the third quarter, the total three expenses of the company increased 19.2% year over year to 0.144 billion yuan, and the sales/management/R&D expenses rate decreased by 13.8/3.2/7.1 ppt to 26.9%/6.9%/17.9% year on month, respectively. 8.1 ppt, good control on the cost side. In the first three quarters, the company's net operating cash flow was +5.7% to 0.075 billion yuan; the net operating cash flow for the 3rd quarter was +87.6% to 0.068 billion yuan, or +10.0% month-on-month. The company's gross margin for the first three quarters was -8.7ppt to 86.3% year-on-year, and the gross margin for the 3rd quarter was -21.0ppt to 72.6% year over year, and -24.6ppt month-on-month, mainly due to confirmation of large low-margin orders, which reduced the company's gross margin performance in the single quarter to a certain extent. However, significant revenue growth combined with cost side management helped release profits rapidly.

Localization is booming, and orders continue to be fulfilled. The company previously launched the DAMENG PAI A series all-in-one computer and won the bid for large-scale central enterprise information infrastructure projects, China Resources Bank, Bank of China Insurance and other industry-side projects, and was launched by the Yichang Municipal Finance Bureau in July 2024. Furthermore, in August 2024, the company won the bid for the national grid scheduling software relational database package; in September, the company's distributed database won the bid for the Shijiazhuang National Health Information Platform project, and won the bid for COFCO E cloud database and middleware procurement in October. We believe that the company led the share of government localization in the last round, and is expected to continue to increase industry-side penetration in 2024 with core products and benchmark case experience such as DMDSC and DM8. Currently, there are sufficient database orders in hand, continuous progress in key industries such as government affairs, energy, and finance, and localization expectations will continue to be fulfilled.

Profit forecasting and valuation

Maintain an outperforming industry rating. We are optimistic that the company's performance will continue to be realized under the wave of localization, increasing 2024/25 revenue by 12%/17% to 1.019/1.259 billion yuan, and 2024/2025 net profit by 18%/25% to 0.387/0.501 billion yuan. We are optimistic that rising localization expectations will drive up the valuation center and raise the target price by 46% to 368 yuan (considering the horizontal comparability of the P/S valuation method, switch the valuation method from DCF to 22x 2025e P/S), current stock price Compatible with 22/18x 2024/2025e P/S, with 25% upside.

risks

Market competition risk; risk of bad debts in accounts receivable; risk of concentrated channel sales revenue.