Brief review of the event

On December 18, 2024, the company issued an asset purchase announcement to purchase SS&C's Algorithmics (Algo for short) market risk and an exclusive permanent license for the current and latest version and source code of the FRT B software product in mainland China with 14 million dollars of its own capital. At the same time, SS&C will assist the company to develop a version based on Algo that meets the requirements of Xinchuang. The company has intellectual property rights over the Xinchuang version.

In addition, the company signed a strategic cooperation agreement with SS&C's parent company and SS&C China, designating the company as the exclusive distributor and exclusive service provider for Algo's full line of software products and services in mainland China, and a priority partner for implementation services in expanding regions (Hong Kong, China, Macau Autonomous Region of China, and Southeast Asia regions such as Singapore and Malaysia). The company uses 2 million dollars of its own capital to purchase customized support services for a total of 5 contract years, paying 0.4 million dollars per year.

Management analysis

The transaction helped the company to enrich its product matrix and expand its customer range. Algo's market risk software products are the main risk management system for financial market businesses. Currently, customers in mainland China include 16 customers including major state-owned banks, joint stock companies, and urban commercial banks, leading the market share. The product has the advantages of high measurement engine efficiency, good accuracy, wide model coverage, and good scalability. The valuation model supports hundreds of financial market trading products, and after being developed by Xinchuang, it can greatly enhance the company's central office capabilities in the financial market business system. In addition, Algo also serves the securities, insurance, fund, asset management and finance industries in the global market, and this transaction is expected to help the company expand financial customers outside of banks.

The business model is expected to be optimized, and international expansion will gradually accelerate. Unlike domestic bank IT, which mainly focuses on customized development, the company will continue Algo's business model of software licensing+maintenance services, which will help improve the company's profitability. The company cooperates with SS&C to serve customers in the Asia-Pacific region, which is expected to accelerate the pace of advancing the international strategy.

Profit forecast

Algo achieved revenue of $3.135 million in China in 2013. Considering the collaborative integration of products from both parties, we raised the company's revenue forecast for 2024-2026 to 1.951/2.101/2.358 billion yuan, up 0.80%/7.68%/12.23% year on year; the net profit forecast to mother was 0.132/0.176/0.208 billion yuan, up 12.72%/33.65%/18.35% year on year, corresponding to EPS It was 0.29/0.38/0.45 yuan, maintaining the “Overweight” rating.

Risk Alerts

IT spending in the banking sector falls short of expectations; industry competition increases risks; risk of lifting the ban; risk of majority shareholders' pledge; new product customer expansion falls short of expectations.