Incident: The company released its results report for the third quarter of 2024. In the first three quarters of 24, it achieved revenue of 4.19 billion yuan, -4.1% year on year; realized net profit of 0.45 billion yuan, or -26.6% year on year; realized net profit of 0.27 billion yuan without return to mother, or -50.3% year on year. Single Q3 achieved revenue of 1.35 billion yuan, or -12.3%; realized net profit attributable to mother of 0.42 billion yuan, +159.2% year over year, mainly due to increased profit and loss due to changes in fair value of other non-current financial assets; net profit after deducting non-return to mother of 0.13 billion yuan, or -51.7% YoY.

The core business of corporate finance insurance has performed well, and the new generation of core products is progressing smoothly. In the first three quarters of 24 years, the company achieved revenue of 8.0 /10.1 /7.9 /3.1 /2.5 /0.37/0.47 billion yuan in Fortune Technology/Asset Management Technology/Operation and Platform Technology/Risk and Platform Technology/Data Services/Innovation/Enterprise Finance, Insurance Core and Financial Infrastructure Technology businesses, respectively, of -20.3%/-3.4%/-6.5%/-2.8%/-0.3%/-0.01%/+16.7%. According to the official account, since the third quarter, the company has made good progress in the next-generation core business system: UF3.0 achieved the launch of all customers in Orient Securities's two-finance business; joined hands with the Federal Reserve Securities to begin construction of a new generation of UF 3.0; O45 implemented a one-time full account switch in China Merchants Cigna Asset Management, etc.

Actively push forward management-side reforms, and continue the trend of improvement on the cost side. The company's gross margin for the first three quarters of 24 was -2.58pp to 69.3% year over year, and net profit margin after deduction was -5.93pp to 6.4% yoy. The company continues to insist on optimizing management efficiency and transferring project-based business to newly established subsidiaries. The sales/management/R&D expense ratio for the first three quarters of 24 was -0.22pp/ +0.95pp/ -0.60pp to 12.0%/14.7%/40.2% year-on-year, respectively. In terms of cash flow, due to lengthening decision-making and acceptance processes by financial institutions, cash received from sales of goods and services fell 6.0% year-on-year to 3.73 billion yuan in the first three quarters of 24; contract liabilities increased 1.3% to 2.27 billion yuan from the end of the second quarter.

Financial credit innovation is progressing comprehensively, and we are waiting for demand to be released. The company actively invests in improving the competitiveness of next-generation Xinchuang products. Many core products such as UF3.0 and O45 have passed full-stack Xinchuang adaptation verification. Judging from downstream demand, there is still plenty of room for incremental rigid demand such as Xinchuang. In addition, the company released WarrenQ 2.0, an upgraded version of the intelligent investment and research platform in September. The large model accelerates iteration, which will further disrupt the business form of financial institutions and better meet the needs of multiple financial business scenarios.

Profit forecast and investment advice: Since September 24, capital market transactions have continued to be hot, and the profit side of downstream financial institutions has recovered. Considering the company's many years of leading technical advantages, it is expected to increase its market share in the core business system in a new round of model selection; combined with the release of rigid demand from downstream Xinchuang, EPS is expected to be 0.77/0.85/0.98 yuan respectively. The PE corresponding to the current stock price is 40/36/31 times, giving 45 times PE, and the corresponding target price is 38.25 yuan, maintaining a “buy” rating.

Risk warning: risk that policy progress falls short of expectations; risk of product launch falling short of expectations; risk of fluctuations in the fair value of financial assets, etc.