A number of companies in the industrial software sector achieved revenue growth in the third quarter. Facing the upcoming implementation of the national software development strategy, it is recommended to focus on leading companies with good downstream prosperity expectations and obvious advantages of localization alternatives.
The Zhitong Finance App learned that China Galaxy Securities released a research report saying that a series of policies to be introduced by the Ministry of Industry and Information Technology will promote large-scale 5G applications and high-quality industrial Internet development, which mainly include five major aspects: “dual gigabit” network development policy, research and development of key core technologies, deep integration of the real economy, improvement of data security capabilities, and opening up the telecommunications industry to the outside world. A number of companies in the industrial software sector achieved revenue growth in the third quarter. Facing the upcoming implementation of the national software development strategy, it is recommended to focus on leading companies with good downstream prosperity expectations and obvious advantages of localization alternatives.
The main views of China Galaxy Securities are as follows:
Market review:
In the same week (10.21-10.27), the Shanghai and Shenzhen 300 index rose 0.79%, the GEM index rose 2.00%, the computer (ZX) sector fell 0.78%, and the industrial software sector fell 2.81%. The top five individual stocks in the industrial software sector rose: Weihong Co., Ltd., Guoneng Novelty, Huada Jiutian, and Hyde Control; the top five declines were: Universal Software, Saiyi Information, Central Control Technology, Baichu Electronics, and Zhongwang Software.
Facing new opportunities, the Ministry of Industry and Information Technology will implement a national software development strategy to promote high-quality development of the software industry.
At the 26th China International Software Fair, Zhao Zhiguo, chief engineer of the Ministry of Industry and Information Technology, reported the rapid growth of China's software industry. Software business revenue increased 11.2% year-on-year from January to August 2024. Emerging fields such as cloud computing, big data, and artificial intelligence are developing rapidly, and breakthroughs have been made in basic and industrial software, and some have reached the international advanced level. Open source projects such as Open Hongmeng and Open Source Euler promote technology integration. The digital transformation of the manufacturing industry is accelerating, and software solutions support enterprises to enhance their strength. More than 0.038 million enterprises are larger than 0.038 million. Software parks and public service systems have been optimized, and the industrial development environment has been improved.
Industrial software sector three-quarter report tracking: As of October 27, 8 out of 20 industrial software companies have released reports for the third quarter of 2024.
During the reporting period, 7 out of 8 companies achieved revenue growth. Among them, 5 companies achieved revenue growth of more than 10%, mainly Baichu Electronics (+31.19), Guoneng Rixin (+18.15%), Keyuan Intelligence (+16.16%), Guangliwei (12.22%), and Central Control Technology+ (11.58%); in terms of net profit, all 8 companies achieved profits. Among them, 6 companies grew more than 20%, namely Pinming Technology (+189.97%) and Pulian Software (+8.14) 36%), Keyuan Wisdom (+75.34 %), Baichu Electronics (+26.84%); in terms of gross margin, the average gross margin was 56.43%, a slight decline from the previous year, and the gross margin of the four companies rose; the average ROE was 5.05%, up 0.81 pct from the same period last year; in terms of expenses, the average cost ratio for the period was 45.52%, down 1.75pct from the same period last year. Among them, Pulian Software (-25.80pct) and Pinming Technology (-14.93pct) had remarkable fee control effects.
Investment suggestions: Baichu Electronics (688188.SH), Keyuan Intelligence (002380.SZ), Central Control Technology (688777.SH), Dingjie Software (300378.SZ), Nengke Technology (603859.SH), etc.
Risk warning: risk that policy progress falls short of expectations; risk that downstream industry prosperity falls short of expectations; risk that R&D and product updates fall short of expectations.
