Event Overview:
1) Recently, Zhongwang Software released the “2023 Annual Report”. In 2023, the company achieved operating income of 828 million yuan, an increase of 37.71% year on year; realized net profit of 61.4064 million yuan, an increase of 922.84% year on year; net profit loss of 77.742 million yuan after deducting non-return to mother.
2) Recently, Zhongwang Software released the “2024 First Quarter Report”. The company achieved operating income of 120 million yuan, an increase of 3.84% over the previous year; net profit loss due to mother was 25.611,000 yuan, after deducting a net profit loss of 78.297 million yuan.
Revenue has returned to rapid growth, and overseas layout has achieved remarkable results
In 2023, by product, ① standard general software revenue was 699 million yuan (YoY +22.98%), of which 2D revenue was 472 million yuan (YoY +16.53%), 3D revenue was 188 million yuan (YoY +16.28%), CAE revenue was 7.1487 million yuan (YoY +209.67%), and Bochao series product revenue was 326.48 million yuan. ② Outsourced software and hardware revenue was RMB 26.5024 million (YoY +313.58%). ③ Custom software revenue was 6,370.93 yuan (YoY +476.23%).
④ Technical service revenue of 339.363 million yuan (YoY +176.7%). Looking at the subregion, domestic revenue of 666 million yuan (YoY +31.55%), with domestic commercial market revenue of about 500 million yuan (YoY +43.66%), and domestic education market revenue of 166 million yuan (YoY +4.87%). Due to poor purchasing intentions of vocational education customers and the negative impact of cyclical adjustments in industry policies, the expansion of the company's domestic education business fell short of expectations; overseas revenue of 157 million yuan (YoY +71.14%). The company continued to promote overseas localization strategy and distribution through global channels Continued investment in network system optimization is beginning to bear fruit.
In 2023, the company's sales/management/R&D expenses rate was 52.54%/11.42%/47.09%, respectively, -4.73/+1.01/-0.92pct. The company invested 404 million yuan (YoY +27.58%), accounting for 48.79% of revenue. The main reason was that the company continued to increase investment in product R&D such as 3DCAD, and introduced a group of outstanding R&D talents. By the end of 2023, 1,151 R&D personnel, accounting for 54.34% of the total number of people in the company.
In the first quarter of 2024, the company achieved operating income of 120 million yuan (YoY +3.84%), and net profit declined sharply compared to the same period last year. Mainly due to an increase in the number of personnel, higher levels of compensation and benefits, introduction of industry leaders, and the acquisition of Beijing Bochao, etc., there was a significant increase in personnel expenses during the current period, but the increase in revenue fell short of expectations. 1) The domestic commercial business achieved steady growth during the reporting period, with revenue from the distribution team increasing by more than 35% year on year; 2) The domestic education business fell short of expectations: due to the extension of the 2023 Spring Festival holiday to mid-February, colleges and universities at all levels resumed work late, compounding the negative effects of the delay in the disbursement of funds from education customers, which contributed to the company's domestic education business falling short of expectations in Q1; 3) With the continued implementation of overseas strategic layout, the company's revenue from overseas markets increased nearly 50% year on year.
3D CAD recognized, reinforces all-in-one CAx strategy
The company focuses on the development and integration of CAx's integrated core technology, promotes effective implementation of design-simulation-manufacturing/construction from a technical and application perspective, and continues to invest in local and cloud product optimization. In 2023, the company's leading products ZWCAD and ZW3D both released the 2024 new version. The product quality improved significantly. The 3D CAD products went through detailed two-way polishing and iteration with customers, and the product functions further met customer needs. In 2023, 3D CAD product sales revenue increased by 16.28%, of which ZW3D enterprise products grew by 28.35%; in 24Q1, the order amount from ZW3D increased by more than 40% year-on-year, reflecting a further increase in customer recognition of ZW3D .
In the CAE product field, the company successfully held a new product launch conference for Zhongwang Low Frequency Electromagnetics (ZWSim Metas 2023), and relied on the wholly-owned acquisition of CHAM, a British commercial fluid simulation software developer, to obtain all the source code and core technology of the fluid simulation software PHOENICS. This indicates that the company has professional simulation capabilities in the fields of structural, electromagnetic and fluid simulation, and can provide strong technical support to the enterprise.
Investment advice
As a domestic R&D and design industry software leader, we expect the company's revenue for 2024/25/26 to be 10.42/12.88/1,534 billion yuan, respectively, and net profit to mother of 1.01/1.09/118 billion yuan, respectively. Zhongwang's business layout and market expansion are centered around the All-in-One CAX strategy to further strengthen the CAE layout. It is the core target for the localization of R&D design tools and software, and maintains a buy-A investment rating. Since the company is in the investment period, the net profit does not fully reflect the company's profit situation, so we use PS for valuation. The target price for 6 months is 103.03 yuan, which is equivalent to 12 times PS in 2024.
Risk warning:
Core technology research and development fell short of expectations; product promotion and industrial ecosystem construction fell short of expectations.