1-3Q24 revenue and profit performance fell short of market expectations

The company announced 1-3Q24 results: revenue of 0.493 billion yuan, or -36.83%; net profit to mother of 6.78 million yuan, -96.39% year over year. Revenue and net profit performance fell below market expectations, mainly due to continued external environmental pressure and tight downstream customer informatization budgets, and the company's integrated payment and budget management business revenue declined more than expected. In 3Q24, operating income was 0.13 billion yuan, or -59.48%; net loss to mother was 26.24 million yuan, which turned into loss year on year; 3Q23 was net profit of 82.08 million yuan.

Development trends

3Q revenue continued to be under pressure, and marginal contract liabilities stabilized. 3Q24 revenue was -59.48% year-on-year, and the decline widened further. We believe it was due to continued pressure on the external macro-environment and the tightening of customer information budgets; at the same time, contract debt declined year-on-year in the first half of the year, causing a drag on historical order sales. In terms of new orders, the contract debt was 45.45 million yuan at the end of 3Q24, which was +1.1% month-on-month compared to the end of 2Q, and the contract debt balance stabilized. We believe that with the introduction of fiscal stimulus policies, the company's 4Q contract signing situation may improve.

Gross profit declined in the 3Q, the cost side continued to increase investment in R&D, and the increase in sales repayments led to an improvement in cash flow from operating activities. The company's 3Q24 gross profit margin was 52.9%, -3.7 ppt year on year. The decline in gross margin was slightly better than expected. We think it was mainly due to the simultaneous contraction of delivery costs and revenue in businesses such as electronic treasury payments.

3Q24 sales expenses, management expenses, and R&D expenses were -0.03, +1.01, and +9.18%, respectively. The company continued to invest in R&D directions such as digital finance and electronic certificate integrated service platforms, laying the foundation for new business expansion. At the end of 3Q24, the company's accounts receivable were $0.488 billion, -1.1% month-on-month compared to the end of 2Q24; 3Q24 credit impairment losses amounted to 3.92 million yuan, accounting for about 3.0% of revenue. The net cash flow from 3Q24's operating activities was 1.02 million yuan. The year-on-year outflow narrowed, mainly due to improved sales repayments in the third quarter.

Looking ahead to 2025, we believe: 1) The medical insurance sector is expected to expand further in the direction of electronic industry. According to the announcement, as of the announcement, 1H24's “Health Insurance Blockchain and Electronic Payment Certificate Application” covered the National Administration and 30 provinces, and was officially launched in more than 4,300 medical institutions. As the application of the company's products continues to mature, large-scale product promotion is worth looking forward to; 2) The cloud service direction of budget units is expected to bring revenue momentum. With the introduction of newly revised accounting laws and related supporting regulations, and the comprehensive promotion of electronic invoices for railway passenger transport, recently, the company's integrated electronic certificate service platform has successfully completed processing functions such as automatic collection, inspection, and analysis of railway electronic invoices. We believe that the comprehensive promotion of electronic accounting documents is expected to drive significant growth in cloud service revenue for budget units.

Profit forecasting and valuation

Due to the company's revenue from electronic treasury payments and integrated fiscal budgets exceeding expectations due to external impacts, we lowered 2024/2025 revenue by 25.3/ 17.3% to 0.902/1.124 billion yuan, and reduced 2024/2025 net profit by 41.9%/23.7% to 0.165 billion/ 0.3 billion yuan. However, in the context of fiscal stimulus and the promotion of electronic vouchers, the company's valuation ratio as a leading financial IT vendor is expected to benefit, maintaining an industry rating and target price of 34.00 yuan, corresponding to 39.7 times the 2025 price-earnings ratio. There is 22.4% room for growth compared to the current stock price. The current stock price corresponds to the 2024/2025 price-earnings ratio of 58.7 times/32.4 times.

risks

The impact of downstream customer informatization budgets exceeded expectations; accounts receivable repayments fell short of expectations.