Event Overview: On February 27, 2024, Longsoft Technology disclosed the 2023 Annual Results Report. In 2023, the company achieved operating income of 387 million yuan, an increase of 6.03% over the previous year; achieved net profit of 88 million yuan, an increase of 10.12% over the previous year; and realized net profit without deduction of 87 million yuan, an increase of 7.18% over the previous year.
Comment:
The decline in the company's performance growth rate may be related to the slowing down in the procurement pace of coal companies. In 4Q23, the company achieved operating income of 135 million yuan, a year-on-year decrease of 11.08%; realized net profit to mother of 0.24 million yuan, a year-on-year decrease of 16.23%. The company's annual performance was slightly lower than the company's planned expectations. We think this may be related to the slowdown in centralized procurement by large coal groups in the second half of the year. By product line, the company's intelligent management and control platform system dominates and continues to grow; the intelligent geological support system business is growing rapidly. The company's profit growth rate was higher than on the revenue side. The net profit margin was 22.78%, up 0.84 pct year on year. We speculate that the main reason was the expansion of the company's scale effect and improved cost control capabilities.
The company entered the Ordos Industrial Internet Platform to jointly promote the mine AI ecosystem. On January 20, 2024, Longsoft Technology signed a contract to enter the industrial Internet platform jointly built by the Ordos Municipal Government and the Huawei Mining Corps. With the “Kuanghong” operating system as the core, the platform integrates a full set of capabilities such as localized AI computing power, AI big models for the mining industry, AI algorithm model development platforms, and application development platforms. Previously, Longsoft Technology and the Ordos Energy Research Institute launched in-depth real estate research cooperation on smart mining business; after signing this agreement to enter the Ordos Industrial Internet Platform, the two sides will jointly build an ecosystem and promote the application and development of AI models in the mining industry.
Mine safety policies have been strengthened, and the prospects for intelligent transformation are broad. In January 2024, the State Council's Work Safety Commission issued the “Hard Measures to Prevent and Curb Major Production Safety Accidents in the Mining Sector”, which mentions that mines with severe disasters and mines with more serious accidents must be intelligently transformed. Under strong policy pressure, coal mine safety supervisors and coal mine enterprise leaders have paid significant attention to mine safety accidents. Earlier, we mentioned in our in-depth report “Digging Gold Mine Intelligence: A New Wave of Renovation Has Arrived” that the penetration rate of intelligent coal mines is less than 20%, and the market space is expected to reach 80 billion yuan in 2025. We believe that intelligent coal mine construction, driven by mine safety requirements, is expected to continue to penetrate downward in 2024, and the boom is still improving.
Investment advice: Maintain a “buy” rating. We expect that in 2024-2025, the company will achieve operating income of 475/570 million yuan, an increase of 22.7%/20.1% year on year; net profit to mother of 1.12/140 million yuan, an increase of 27.4%/25.0% year on year.
Risk warning: Competition in the industry is intensifying, and the progress of intelligent mine transformation falls short of expectations.