2021 results largely in line with market consensus

Aisino announced its 2021 results: Revenue rose 7.81% YoY to Rmb23.52bn, attributable net profit fell 0.86% YoY to Rmb1.03bn, and recurring attributable net profit increased 28.55% YoY to Rmb1.35bn.These results were largely in line with market consensus.

Trends to watch

Revenue resumes positive growth; declines in taxation business narrows; information business maintains a high growth rate. 1) As Aisino gradually recovered from the impact of COVID-19, revenue growth returned to positive territory and reached Rmb23.52bn for full-year 2021, up 7.81% YoY. 2) Aisino’s system construction of Phase IV Golden Tax projects continued unabated. Specifically, revenue from the anti- counterfeiting tax control fell 9.58% YoY to Rmb3.2bn due to the government’ s efforts on tax and fee reduction. However, tax reduction policies had a relatively limited impact on Aisino’s business, in our view.Regarding corporate finance and taxation, revenue slightly decreased 0.74% YoY to Rmb3.93bn, staying relatively stable thanks to high customer loyalty. Revenue of the company’s AI and Internet business equaled Rmb4.19bn, an increase of 4.35% YoY. Regarding its information business, the company maintained high growth with a first-mover advantage in localization; revenue soared 82.08% YoY to Rmb4.59bn.Revenue of other businesses totaled Rmb7.58bn, down 2.29% YoY. The company continued to reduce its low-GM businesses.

Gross margin improved; cash flow fell due to increasing inventories and the repayment of convertible bonds. 1) Aisino’s gross margin (GM)　improved in 2021, with that of its main business at 25.35%, up 1.16% YoY.Among all businesses, the GM of AI and Internet as well as information businesses increased significantly by 9.34ppt and by 6.07ppt. 2) The company’s expense ratio decreased steadily in 2021 due to effective cost control. 3) In 2021, non-recurring losses from changes in fair value reached Rmb394mn due to changes in the prices of CNPC Capital shares held by Aisino(Aisino invested CNPC Capital). The company's recurring attributable net profit in 2021 was Rmb1.35bn, up 28.55% YoY. 4) Cash and cash equivalents decreased Rmb2.30bn in 2021. Specifically, net operating cash inflow equaled Rmb1.88bn, down 39.91% YoY, as the fast growth of AI and Internet and information businesses led to increased inventories. At end-2021, inventory totaled Rmb1.24bn, up 90.41% YoY.

Net cash outflow from financing activities was Rmb3.29bn, mainly due to the repayment of convertible bonds.

Phase IV Golden Tax projects continue to bring benefits; we expect　localization to boost orders. 1) The Phase IV Golden Tax project is progressing smoothly in 2022. Aisino actively responded to the policy changes of the State Taxation Administration and accelerated the transformation of Golden Tax product development. The company also invested in system construction for Phase IV Golden Tax and increased R&D and market spending in application scenarios related to finance and taxation to accelerate its expansion of the enterprise service market. 2) In 2022, Aisino expects the localization of multiple industries to progress in an orderly fashion. Its information business has a solid foundation, and we expect it to explore opportunities in key industries experiencing localization, obtaining more orders.

Financials and valuation

Given the potential decline in the anti-counterfeiting tax control business, we cut our 2022 net profit forecast 7.05% to Rmb1.18bn, and introduce 2023 earnings forecast Rmb1.33bn. The stock is trading at 19.7x 2022e and 17.5x 2023e P/E. We maintain an OUTPERFORM rating and TP of Rmb13.6 (21.3x 2022e and 18.9x 2023e P/E), offering 8.5% upside.

Risks

Phase IV Golden Tax projects affected by policy; disappointing localization substitution.