Years of deep involvement in the industry have created a comprehensive service provider for financial IT solutions. Established in 1994, Xinzhi Software is a leading software outsourcing service provider in China. Its main business includes providing IT solutions, IT operation and maintenance services to financial institutions such as insurance companies, banks, and end customers in other industries, as well as software project subcontracting services to first-tier software contractors. Among them, the company's revenue from financial institutions such as insurance companies and banks accounts for more than 60%, which is the main source of the company's IT solution revenue.
Revenue and profit declined somewhat due to the impact of the pandemic. Before the outbreak of the epidemic, the company's revenue and net profit returned to the mother maintained relatively rapid growth. From 2017 to 2019, the compound annual growth rates reached 12.66% and 51.30% respectively.
During the pandemic, companies and customers responded to the local government's policy of delaying the resumption of work and delayed employees' return to work.
The delay in resuming work led to the company's operating income of 488.407 million yuan in the first half of 2020, a decrease of 3.21% compared to the same period last year, and net profit attributable to owners of the parent company was 1,80633 million yuan, a year-on-year decrease of 8.69%.
Insurance IT has a prominent position, and financial IT solutions continue to flourish. The company has been serving giants in the insurance industry such as China Taibao, China Life Insurance, Xinhua Insurance, and China People's Insurance for a long time. It has accumulated rich experience in continuously developing and constructing information systems for them, and has formed a complete information technology service system. In 2019, the revenue scale of IT solution services in the corporate insurance industry was 460 million yuan, ranking third in the IT solutions market of the Chinese insurance industry in 2019, accounting for 4.88% of the total market share. As far as the insurance industry is concerned, the total size of the insurance IT solutions market in 2019 increased 23.3% compared to 2018, which is higher than the year-on-year growth rate of China's GDP in that year (6.1%). IDC predicts that the IT solutions market for China's insurance industry will reach 20.474 billion yuan by 2023. In the banking industry, IT investment reached 145.913 billion yuan in 2019, an increase of 22.8% over the previous year. It is estimated that by 2023, China's banking industry's overall IT investment will exceed 200 billion yuan, reaching 2017.05 billion yuan. The financial IT solutions market is the main battleground for the company to operate, and its rapid growth in scale will strongly drive the company's further expansion.
Profit forecasts and investment recommendations. We believe that the company has formed a certain position in the industry and accumulated certain customer resources, and the prosperity of its industry is expected to continue. With sufficient capital and the gradual improvement of the epidemic, the development of various businesses is expected to accelerate. We forecast that the company's revenue for the year 2020 to 2022 will be 1,119/1,277/1,579 billion yuan respectively, net profit of the parent company will be 0.81/1.02/136 million yuan respectively, and the corresponding EPS will be 0.45/0.56/0.74 yuan respectively. Referring to comparable companies, given the 2020 dynamic PE50-55 times, the six-month reasonable value range was 22.50-24.75 yuan, covering the “superior market” rating for the first time.
Risk warning. Business progress fell short of expectations under the influence of the pandemic.