Yuanguang Software's net profit for 3Q24 fell 12.1% year on year, slightly lower than market expectations

The company announced results for the first three quarters of 2024: revenue fell 1.4% year on year to 1.539 billion yuan; net profit to mother fell 27.2% year on year to 0.11 billion yuan; net profit after deducting non-net profit fell 22.5% year on year to 0.108 billion yuan. Q3: Revenue increased 3.4% yoy to 0.494 billion yuan, down 15.4% month-on-month; net profit to mother fell 12.1% yoy to 0.054 billion yuan, up 14.0% month-on-month; net profit after deducting non-net profit fell 11.3% yoy to 0.054 billion yuan, up 16.5% month-on-month. Due to the continued increase in the company's expense investment, changes in the age structure of accounts receivable and contract assets, and the impact of the progress of some subsidiary projects, the company's performance was slightly lower than market expectations.

Development trends

The revenue growth rate gradually improved in a single quarter. In the third quarter, the company continued to push forward the implementation of the project, helped China Power Construction's financial sharing system switch at all levels, and cooperated with Anhui Energy Group to build a financial sharing and operation platform to help the State Grid Mengdong Electric Power deepen electronic file management; on the product side, the company released “AI+” products and completed the adaptation of the Hongmeng system for smart business travel applications. The company's 1Q/2Q/3Q24 revenue changed +0.8%/-6.8%/+3.4% year-on-year, and the revenue growth rate gradually improved in a single quarter. We believe that the company's revenue is related to the pace of downstream bidding and project acceptance, and we are optimistic about the potential for medium- to long-term companies to release on-hand orders. In the first three quarters, the company's gross margin was -2.2ppt to 57.0% yoy, and the gross margin for the 3rd quarter was -7.6ppt to 53.7% yoy, and -3.0ppt month-on-month.

Net interest rates and cash flow improved month-on-month; the chairman election was completed. In the first three quarters, the company's total three expenses were +5.0% to 0.778 billion yuan, and sales/management/R&D expenses increased 0.7/0.5/1.9ppt to 8.2%/9.9%/32.4%, respectively; the sales/management/R&D expenses for the single three quarters were +1.6/-0.9/-3.3ppt to 7.1%/10.0%/27.5%, respectively. According to the company's announcement, due to the increase in R&D investment, changes in the age structure of accounts receivable and contract assets, and the failure of subsidiary projects, the company's net interest rate/deducted non-net interest rate fell 2.5/1.9ppt to 7.2%/7.0% year-on-year in the first three quarters, respectively; in the third quarter, the company's net interest rate/deducted non-net interest rate fell 1.9/1.8ppt to 10.9%/10.9% year-on-year, respectively, and increased 2.8/3.0ppt from month to month, respectively. In the first three quarters, the company's net operating cash outflow narrowed by 0.022 billion yuan to 0.755 billion yuan, the company's repayments accelerated, and the number of accounts receivable turnover days was -12.2 days to 141 days; the net operating cash outflow for the 3rd quarter increased by 0.03 billion yuan year-on-year to 0.123 billion yuan, narrowing 0.265 billion yuan month-on-month. According to the company's announcement, the board of directors agreed to elect Mr. Shi Ruijie as the chairman of the company's 8th board of directors. The new chairman is also the chief engineer of State Grid Digital Technology Holdings Co., Ltd. We believe it is expected to bring business-level collaboration to the company and promote the implementation of domestic alternative products in various fields.

Profit forecasting and valuation

Keep outperforming industry ratings and profit forecasts unchanged. Considering the upward shift in the sector valuation center, we raised the target price by 17% to 7 yuan (based on 38/33x 2024/25e P/E). The current stock price corresponds to 32/27x2024/25e P/E, with 21% upward space.

risks

Investment in power grids fell short of expectations; progress in market-based electricity reforms fell short of expectations.