Incidents:

The company released the 2022 annual report and the report for the first quarter of '23. The company achieved revenue of 9.386 billion yuan for the full year of 2022, an increase of 10.64% over the previous year; net profit of the mother was 793 million yuan, -12.59% year on year; net profit after deducting non-net profit was 606 million yuan, -15.76% year on year, which is basically in line with expectations. In the first quarter of 2023, the company achieved revenue of 2,128 million yuan, an increase of 7.83% over the previous year; the net profit of the mother was 154 million yuan, an increase of 1.66% over the previous year; after deducting non-net profit of 124 million yuan, -1.20% year on year.

Comment:

1. The technology and new media sector is growing well, contributing to steady revenue growth. In 2022, the company achieved revenue of 9.386 billion yuan, an increase of 10.64% over the previous year, mainly due to smart city and national new media business growth. Among them, the annual revenue of the smart city digital business was about 3.195 billion yuan, an increase of 21.37% over the previous year, winning bids for 515 projects above the million level, with a total amount of 2,666 billion yuan, an increase of 42% over the previous year; the new media business revenue was about 2,663 billion yuan, an increase of 14.57% over the previous year. The business has covered the national radio and television interactive television, Internet TV, IPTV, and urban outdoor screens in Zhejiang Province, forming a national integrated media business development matrix with the characteristics of Huashu.

2. Increase R&D innovation drive and construct a new pattern of development. In 2022, the company spent 506 million yuan on R&D, an increase of 36.16% over the previous year, mainly due to an increase in R&D projects and R&D personnel. The company has set up R&D centers in Hangzhou, Ningbo and Xi'an, focusing on building the four core platforms of “urban IoT sensing platform, grassroots governance platform, smart space platform and big data platform”, integrating scientific and technological resources, establishing new mechanisms, building new tracks, and developing new businesses. Higher R&D expenses may be the reason for the decline in net profit.

3. Investment advice: The company's estimated revenue for 23-25 is 9668/998/10.256 billion yuan respectively, and the net profit of the mother is 854/917/997 million yuan respectively. Corresponding to the current stock price, PE is 21.72X/20.22X/18.80X respectively. First coverage, giving a “recommended” rating.

4. Risk warning: new business revenue falls short of expectations, industry competition intensifies, and smart city projects decline