Resilience to risks was strong under the pandemic, and gross margin level increased in 2020; 2021Q1 revenue picked up and returned to a high growth trend. According to the company announcement, the company achieved revenue of 1,074 million yuan in 2020, a year-on-year decrease of 3.88%. This was mainly due to the impact of the novel coronavirus pneumonia epidemic. The company undertook projects for customers was slightly delayed, and the progress of some development projects was delayed; the company's net profit to the mother was 81.61 million yuan, an increase of 2.55% over the previous year; net profit returned to the mother after deduction was 64.61 million yuan, a decrease of 0.25% over the previous year. It is worth noting that the company's gross margin level increased across the board in 2020; in 2020, the company's gross margin was 32.56%, an increase of 2.06pct over the previous year; looking at the breakdown, the gross margin of the insurance industry, banking and other financial industries, and the enterprise service industry all increased, with increases of 4.41, 1.63, and 1.99pct, respectively. Furthermore, net cash flow from the company's operating activities performed well. In 2020, it was 29.6 million yuan, an increase of 178.38% over the previous year, changing from negative to positive. The company achieved revenue of 253 million yuan in the first quarter of 2021, an increase of 24.54% over the previous year; the net profit of the mother reversed a year-on-year loss of 10.9937 million yuan; at the same time, the gross margin for the first quarter of 2021 reached 32.10%, an increase of 3.2 pct over the previous year.

We believe that the company's revenue picked up significantly in 2021. With the recovery in industry demand, the company's revenue growth rate is expected to continue to rise in the future.

Cloud services increase the gross profit margin of the insurance industry, and the construction of a banking ecosystem is being promoted. By industry, in 2020, the corporate insurance industry achieved revenue of 419 million yuan, a year-on-year decrease of 8.91%; banks and other financial industries achieved revenue of 277 million yuan, an increase of 7.07% over the previous year; and the corporate services industry achieved revenue of 265 million yuan, an increase of 0.09% over the previous year.

The company continued to maintain its competitive advantage in the IT solutions market in the insurance industry in 2020, ranking in the top three market share. At the same time, in terms of cloud services, it actively promoted cloud service solutions such as sales traceability platforms and independent analysis platforms that meet the deep business needs of the insurance industry to promote an increase in gross margin. The business of corporate banking and other financial industries is developing well. Among IT solutions in the banking industry, the company has advanced technical capabilities and complete solutions for bank information systems, such as payment, clearing and escrow, risk control systems, and financial market valet transaction systems. Furthermore, the company's accumulated software product development capabilities in serving large and medium-sized bank customers have been further exported to small and medium-sized banks, in addition to increasing market demand, which contributed to a good revenue growth in 2020.

Develop the PaaS ecosystem, and the repurchase rate of major customers remains high. The company's customer repurchase rate continues to increase, and its stickiness to customers continues to increase. From 2018 to 2020, the revenue share of the company's top 100 customers remained at the level of 89%, while the annual repurchase rates of the top 100 customers were 87%, 87%, and 94%. We believe that the repurchase rate is one of the core indicators of IT service companies. The repurchase rate of 90% of the company's major customers is already in a leading position in the industry, and has remained at a relatively stable high level for several years, indicating that the company's existing high-quality customers are highly persistent and can provide the company with a relatively stable income. In the company's current business development plan, building a PaaS platform ecosystem is an important direction. The company plans to develop PaaS platform products and services, lead IT structure changes in the industry, and actively build a corresponding ecosystem. We believe that the stickiness of the company's existing high-quality customers and a stable high repurchase rate will be an important support for the development of the company's PaaS platform and open up new growth space for the company

High R&D broadens the company's product system and enhances the competitiveness of the PaaS ecosystem. In 2020, the company invested 101 million yuan in R&D, an increase of 10.36% over the previous year. The total number of R&D personnel was 396, an increase of 15.79% over the previous year; 38 patent applications were submitted, including 35 invention patents; and a total of 85 software copyrights were approved. The company built the Newtouch One project management platform and the Newtouch X resource management platform based on the idea of providing integrated IT services from development to operation for industry customers. We believe that the company's continuous investment in R&D is expected to maintain its technological advantages, and the launch of new products will help match the development of the company's PaaS platform, empower customers with the ecosystem, and further enhance the overall competitiveness of the industry.

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, various business development is expected to accelerate. At the same time, the company is actively building a PaaS ecosystem and exploring various new business models on top of the advantages of existing high-coverage products and customers with high reuse rates, which is expected to further open up market space in the future. We forecast that the company's 2021-2022 EPS will be 0.58/0.74 yuan respectively; 2021-2022 revenue will be 1,383/1,759 billion yuan respectively. Referring to comparable companies, we value the company using two methods: (1) giving the 2021 dynamic PE38-42 times, corresponding to the 6-month reasonable value range of 22.05-24.37 yuan; (2) giving the 2021 dynamic PS 3.0-3.2 times, corresponding to the 6-month reasonable value range of 22.79-24.31 yuan. In summary, the company's six-month reasonable value range was 22.05-24.37 yuan, maintaining the “superior market” rating.

Risk warning. Overseas business development fell short of expectations, and industry demand fell short of expectations.