1Q24 revenue and net profit performance are in line with our expectations
The company announced 1Q24 results: 1Q24's revenue fell 14.9% year on year to 294 million yuan; net loss to mother was 52.64 million yuan (loss of 86.36 million yuan in the same period last year), and losses narrowed 39% year on year; net loss after deducting non-return to mother was 78.76 million yuan (loss of 120 million yuan in the same period last year); revenue and net profit performance met our expectations.
Development trends
The improvement in the revenue structure led to a recovery in gross margin, and various expenses were well controlled. In 1Q24, the company's revenue fell 14.9% year on year. 1Q24 gross margin increased 5.4ppt to 68.5% year-on-year. We believe that this is due to improvements in the company's revenue structure, 1Q's high-margin recruitment and operation business and cost business revenue may increase to a certain extent, driving the company's overall gross margin recovery. On the cost side, sales expenses, management expenses, and R&D expenses decreased by 22.0%, 7.1%, and 8.1%, respectively. The company's expense control was obvious. The net loss to mother in 1Q24 was 52.64 million yuan (loss of 863.6 billion yuan in the same period last year), and losses narrowed 39% year over year.
Repayment management was strengthened. Accounts receivable remained flat year over year at the end of the quarter, and credit impairment loss reimbursement amounts increased.
Net cash flow from 1Q24 operating activities was -289 million yuan (-354 million yuan in the same period last year), mainly due to strengthened repayment management. 1Q24 credit impairment losses were refunded at $10.74 million ($6.16 million was refunded in the same period last year), which we believe stemmed from the company's strengthened repayment management and order acceptance. Accounts receivable remained flat at $1,336 million at the end of the first quarter; contract liabilities fell 13% year over year to $388 million.
Looking ahead to 2024, in terms of smart procurement and digital construction business, we believe that the restoration of high-margin procurement operations and cost business is expected to contribute to the company's gross profit increase. In terms of smart government business, the company said it will continue to focus on the core business of digital government. We believe that the company has deep technical accumulation and service experience in the field of government affairs. For example, the subsequent promotion of public data element policies is expected to bring opportunities for company-related business development. According to the company's official account, in January, the company won the bid for the “6+4" integrated comprehensive supervision platform procurement project in the Beijing Economic and Technological Development Zone. We believe that the company will actively seize market opportunities, and new orders are expected to resume growth throughout the year.
Profit forecasting and valuation
The profit forecast for 2024 and 25 remains largely unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 31.1 times/20.6 times. Maintaining an industry rating and a target price of 32.00 yuan, corresponding to 45.9 times the price-earnings ratio of 2024 and 30.4 times the price-earnings ratio of 2025, there is 47.5% upside compared to the current stock price.
risks
The resumption of procurement activities fell short of expectations, and the project acceptance progress fell short of expectations.