Company Profile

Shenzhen Kingdom Sci-Tech Ltd is a China-based company mainly engaged in the provision of financial technology services, full technology stack and full product line solutions.

The Company is mainly engaged in two businesses. The financial industry business includes securities brokerage software business, asset management institution software business, banking institution software business, integrated financial software business and customized service business. The non-financial industry business includes digital economy business, information technology （IT） equipment distribution business and science and technology park leasing business.

The company mainly conducts its businesses in the domestic market. （Source: MarketScreener）

Event

Shenzhen Kingdom Sci-Tech Ltd （the company） turned in revenue of CNY 2.727 billion in the first half of 2023, inching up 0.17%YoY; it reported its net income attributable to shareholders at CNY 66 million, down 15.70% from a year ago; it posted its net income deducting non-recurring items at CNY 17 million, 57.58% lower than it was a year earlier.

Investment Highlights

Its securities IT business saw robust growth while its asset management IT business was impaired by business integration.

In Q2, the company achieved revenue of CNY 1.464 billion, down 2.03% YoY.

By businesses, in H1, its securities brokerage software business earned CNY 300 million in H1, up 19.61% from a year ago; its asset management institution software business reported CNY 54 million, 37.97% lower than it was a year ago, mainly due to business integration which slowed project acceptance check and income recognition; its banking institution software business turned in CNY 200 million, 1.21% lower than it was a year ago; its integrated financial software business and customized service business achieved CNY 15 million and CNY 375 million, up 64.01% and down 8.14%, respectively.

Its digital economy business and science and technology park leasing business declined by 24.10% and 16.10% to CNY 170 million and CNY 38 million, respectively, while its information technology （IT） equipment distribution business rose by 5.34% to CNY 1.571 billion.

Its overall expense rate was stable, and its net income in Q2 recovered.

In H1, its overall gross margin was 21.57%, up 0.36 percentage points （pps） from a year ago. Its administrative, selling and R&D expense rates totaled 0.12%, up 0.39pps　　from a year ago.

In Q2, it achieved CNY 124 million in net income attributable to shareholders, up 6.69% and CNY 79 million in net income deducting non-recurring items, 11.97% higher than it was a year ago, better than they were in Q1.

The information innovation and AI applications usher in new development opportunities for the company.

Its core products have completed adaptation to information innovation and it has gradually promoted its FS 2.0 to customers.

It took the lead to start algorithm transformation for national secrets in the industry and has established a complete and advanced algorithm transformation solutions.

It also forged one-stop integrated solutions for digital staff and also developed financial AI modes and supportive applications to further perfect AI products.

Earnings forecast and investment recommendation

According to its latest financial report, we revised our earnings forecasts and estimated its net income attributable to shareholder at CNY 322 million in 2023, CNY 387 million in 2024, and CNY 445 million in 2025. Reiterate “Outperform”。

Potential risks

slower-than-expected information innovation progress; less-than-expected IT spending; intensified competition