The net profit of Taiji Co., Ltd. increased 60.7% year-on-year in 3Q24, which is basically in line with market expectations

The company announced its results for the first three quarters of 2024: revenue fell 16.9% year on year to 4.338 billion yuan; net profit to mother changed from profit to loss year over year to -0.028 billion yuan; net profit changed from profit to loss year over year to -0.035 billion yuan.

Single quarter 3: Revenue fell 14.7% year on year to 1.724 billion yuan, up 81.8% month on month; net profit to mother increased 60.7% year over year to 0.131 billion yuan, changing from loss to profit; net profit after deducting non-net profit increased 71.9% year on year to 0.129 billion yuan, which changed from loss to profit from month to month, which is basically in line with market expectations.

Development trends

Product acceptance was gradually implemented, and the Group's increase in holdings showed confidence. Many of the company's products passed the test, and the project gradually entered the acceptance stage: In September, the smart port public service platform project in the Hengqin Guangdong-Macao Deep Cooperation Zone was successfully completed. In October, Taiji Co., Ltd. undertook the national key research and development plan “Digital Twin System and Integrated Network Computing System Construction” project successfully passed the performance evaluation of the topic. Electrotech Jincang's centralized database product Jinchang database management system V9 and the distributed database product Jinchang distributed HTAP database cluster software V3 passed the evaluation, and the “Taiji Trusted Data Space Platform V1.0” completed all the details of the first batch of data space platform capability tests of the Academy of Information and Communications Technology. We believe that the company's core database product Denke Treasury is expected to benefit from the trend of localization and is expected to accelerate at the level of order execution. On October 19, the company announced that the controlling shareholder CLP Taiji and co-actor CLP Investment will increase their total holdings by no more than 2% of the company's shares (the increase period is six months after the announcement), which we believe shows the Group's confidence in the company's future steady development and recognition of its long-term investment value.

The gross margin for the third quarter increased year-on-year, and the quality of cash flow improved. The company's revenue for the first three quarters was -16.9% year-on-year, and revenue for the third quarter was -14.7%. It was mainly affected by delays in project bidding and acceptance and increased competition in the industry. The company's new orders were slow, and acceptance actually slowed. In the first three quarters, the company's gross margin was -0.3ppt to 28.9% yoy, and the gross margin for the 3rd quarter was +2.5ppt to 32.5% yoy, and +3.3ppt month-on-month. We expect the share of high-quality business to increase. In the first three quarters, the company's total three expenses were -1.2% to 1.262 billion yuan, and the sales/management/R&D expenses ratio was +1.7/+3.2/-0.3ppt to 5.4%/21.3%/2.4% year over year; in the third quarter, the total three expenses of the company were -8.2% to 0.404 billion yuan, and the sales/management/R&D expenses ratio was +1.4/+2.0/-1.7ppt to 4.7%/17.2%/1.4%, respectively, down 5.4/15.7/3.8ppt. In the first three quarters, the company's net cash outflow from operating activities narrowed by 0.289 billion yuan to 1.597 billion yuan; the net cash flow from operating activities changed from negative to 0.247 billion yuan year on year in a single quarter, which was positive year on month.

Profit forecasting and valuation

Maintain an outperforming industry rating. Considering the company's high-quality development and focusing on high-quality business, we lowered 2024/25e revenue by 3%/3% to 9.195/9.652 billion yuan, and 2024/25e net profit by 3%/3% to 0.367/0.387 billion yuan. Maintaining a target price of 30 yuan (based on 2025 SOTP), the current stock price corresponds to 42/39x 2024/25e P/E, with 23% upside.

risks

The recovery in downstream demand fell short of expectations, and the expansion of new products fell short of expectations.