Company Profile

Linewell Software Co., Ltd. is a China-based company principally engaged in the research and development of software, as well as the construction and operation of Internet sharing and economic platforms. The Company is mainly engaged in software development and system integration businesses, as well as the provision of technical services. The Company's products are mainly used in smart cities, government affairs, party affairs, public security, transportation, water conservancy and big data and other areas. The Company operates its business in domestic market, with Fujian Province as　its main market. (Source: MarketScreener)

Event

Linewell Software (“the company”) is a leader in digital government construction. CR Digital’s plan to take a stake in the company expected to bring new momentum for the Linewell Software.

Founded in 2002, the company has been engaged in the field of government services and public security for twenty years, and its business has gradually expanded from Fujian to the whole country. In recent years, the company has maintained steady revenue growth, with a CAGR of 20.76% from 2017 to 2021.

In August 2022, the company announced that CR Digital intends to take a stake in the company through agreed transfer and private placement. After the completion of the equity change and private placement, CR Digital will take a 29.87% stake in the company, which will make it the largest shareholder of the company. And the effective controller of the company will be changed to the State-owned Assets Supervision and Administration Commission. The company is expected to enter a new stage of development.

Comments

The company consolidates its foundation in digital government business and takes the initiative in meeting novel demands.

In 2022, many digital government policies were implemented, which are likely to benefit the company. In terms of government affairs, as the leading company in the formulation of standards for electronic license, the company promotes the construction of “one-network for all businesses” and accelerates the construction of municipal affairs platforms and electronic licenses for multiple provinces. The company also introduces plans for the big data market for integrated government affairs.

In terms of public security, the company continues to promote the reform of police service integration. The company also extends its layout to new scenarios of smart politics and law.

In the field of innovation, the company has comprehensively built “one-network for unified management” systems for urban governance. The company is also the first to introduce benchmark platforms such as “City Connect” to explore new business formats for urban running.

New opportunities: The company is expected to join hands with CR Digital to create a new growth point.

At present, China Resources Group is ramping up efforts in the technology industry, and its joining is expected to consolidate the company’s advantages in the field of government affairs.

CR Digital is the core builder and operator of China Resources Group’s digital business, providing CR Cloud, data management and smart products, making it able to help the company explore the corporate market.

In addition, China Resources Group’s “China Resources Connect” has abundant resources in platform and traffic. Both sides are expected to join hands in building “City Connect” platforms that integrate consumption, government affairs, life and other services, which will bring potential for C-end business.

Earnings forecast and investment recommendation

With the demand for the construction of digital government increasing, the advantages of the company are highlighted. If CR Digital successfully becomes the biggest shareholder of the company, the company is expected to welcome a new growth point.

We revise our forecast of the company’s net profit attributable to shareholders to CNY147 million, CNY209 million and CNY291 million for 2022, 2023 and 2024, respectively.

We maintain the rating of “Outperform”.

Potential risks

Uncertainties in the private placement and shareholding of CR Digital; less-than-expected government investment in informatization due to macro factors; slower-than-expected progress in the technology research and development and promotion of innovative businesses such as urban operations.