Incident Overview

The company recently released its three-quarter report for 2024. In the first three quarters, the company achieved revenue of 6.68 billion yuan, an increase of 0.94% year on year, and achieved revenue of 2.584 billion yuan in 24Q3, an increase of 8.98% year on year.

The company's net profit for the first three quarters was -0.118 billion yuan, a year-on-year decrease of 235.96%, and 24Q3 net profit to mother was -0.041 billion yuan, a year-on-year decrease of 804.12%. The company's financial services achieved revenue of 2.459 billion in the first three quarters, an increase of 19.42% over the previous year, and continued to grow well.

Financial services support growth, and strategic investment to profit declined

On the revenue side, the company achieved an 8.98% year-on-year increase in revenue in Q3, and revenue growth accelerated. We think it was mainly the financial industry that achieved good support. The company's financial sector achieved revenue of 3.039 billion yuan in the first three quarters, of which financial soft services revenue was 2.459 billion yuan, an increase of 19.42% over the previous year. The financial industry contract amount reached 3.578 billion yuan, of which financial soft service contract amount reached 2.817 billion yuan, an increase of 17.34% over the previous year. The company has sufficient orders in hand, and Financial Services has signed an unsold price of 2.957 billion yuan, an increase of 28.57% over the previous year.

On the profit side, the company's net profit declined year-on-year. On the one hand, due to intense competition in the industry, the gross margin of the business fell 3.08 percentage points compared to the same period last year. On the other hand, in order to expand the strategic business scale of fintech, the company increased related investment in new product lines, which led to a decrease in the company's net profit and deducted non-net profit compared to the same period last year. We believe that the company is currently still in the stage of strategic transformation, and short-term investment will benefit long-term growth.

The domestic market focuses on fintech and plans to boost overseas markets

In the domestic market, the business that the company is focusing on cultivating has gradually matured. In the third quarter, it successfully won the bid for a joint stock bank's 10-million-level unified credit management platform project group. At the same time, it also won the bid for projects such as the credit system transformation of a major joint stock bank, the disposal of non-performing assets of Ping An Bank, and the pre-loan and post-loan business system of a finance company. Other product lines such as treasury solutions, data asset business, and digital finance business have all expanded with new customers and projects.

In overseas markets, on August 31, 2024, the company announced the “2024 Plan for Issuing Shares to Specific Targets with Simple Procedures”, which plans to raise 300 million dollars for OneBox's overall overseas banking business system, the development of the “Qiankun” enterprise-level digital smart base project, and supplementary working capital. Among them, the OneBox project integrates application systems such as core systems, general ledger systems, counter systems, and electronic channels. The key business systems achieve multi-language configuration capabilities, the ability to connect with international standards such as Swift, and develop special systems such as international settlement and regulatory compliance required by overseas banks to form a OneBox overseas bank overall business system suitable for overseas banks. In the third quarter, according to the company's announcement, the company made another breakthrough in overseas business development, won a bid for the core business system of a major Japanese foreign bank, and signed a general ledger project for a foreign bank in Hong Kong. We believe that the overseas market is a new blue ocean market. The company's product layout is gradually improving, and future development can be expected.

Investment advice:

Shenzhou Information has more than 30 years of experience in providing technology services to financial institutions. Currently, it continues to focus on fintech strategies and has complete financial products and solutions. Driven by the needs of Financial Innovation and AIGC, it is expected to achieve long-term steady business growth. At the same time, the company forwardly lays out the quantum information industry to open up space for future development. We expect the company to achieve operating income of 12.358/13.113/13.982 billion yuan and net profit to mother of 0.238/0.298/0.38 billion yuan in 2024/25/26. Maintaining a buy-A investment rating, a 6-month target price of 12.21 yuan is given, which is equivalent to 40 times the dynamic price-earnings ratio of 2025.

Risk warning: Financial IT capital expenditure falls short of expectations; technology research and development falls short of expectations.