Zhongtai International released a research report maintaining a "buy" rating on INSPUR DIGI ENT (00596), largely keeping the company's earnings forecast unchanged. The firm projects FY25E/FY26E net profit of RMB520 million/RMB620 million, representing year-over-year growth of 35.6%/19.5%. The compound annual growth rate for FY25E-27E net profit is projected at 19.1%. As cloud services business expands, the company's profitability is rapidly strengthening. Based on a 20x FY26E P/E valuation, the target price is adjusted to HK$12.00.
**Business Structure Improvement with Significant Net Profit Growth**
INSPUR DIGI ENT achieved revenue of RMB4.33 billion in the first half of the year, up 4.9% year-over-year, meeting expectations. The business structure improved significantly during the period, with cloud services generating revenue of RMB1.27 billion, up 30.0% year-over-year, with its proportion rising to 29.3%. The proportions of management software and IoT solutions decreased to 27.6% and 43.1% respectively. Cloud services' half-year operating profit margin improved to 1.6%, compared to -7.0% in the same period last year. Operating profit margins for management software and IoT solutions remained stable at 15.4% and 1.0% respectively. First-half net profit reached RMB180 million, surging 73.3% year-over-year.
**Adhering to "AI First" Strategy with Continuous Large Model R&D Upgrades**
The company continues to execute its "AI First" strategy, with all product lines embracing artificial intelligence large model technology. Focused on enterprise services, the company continuously develops the Haiyue large model and full-stack tool services, providing customers with leading AI solutions. The company has created AI-native Haiyue enterprise software and launched the ready-to-use intelligent agent cluster Haiyue Commercial AI, implementing high-value intelligent application scenarios to provide customers with leading AI solutions. Through a three-tier architecture of "AI digital intelligence foundation + AI-native software + intelligent agents," the company addresses the challenges of AI application implementation, helping enterprises achieve digital intelligence transformation.
The company continues to improve its international support foundation, building unified translation management systems in products, adding multiple accounting standards, supporting parallel ledgers, and meeting international accounting requirements.
**Domestic Focus on Central SOEs, Overseas Focus on SMEs**
As of the first half of the year, the company's accounts receivable totaled RMB3.38 billion, with over 80% coming from central and state-owned enterprise customers, and government customers accounting for 4%-5%. Historical experience shows the company's bad debt rate is extremely low. The company has cumulatively provided digital transformation services to 86 central SOEs, 190 Chinese Fortune 500 companies, and 1.2 million corporate customers. Currently, overseas revenue accounts for only 8.7%. The company plans to intensify overseas market expansion, initially promoting management software products to small and medium manufacturing enterprises in Southeast Asia. Additionally, following central and state-owned enterprises overseas will help bring incremental revenue to the company.
**Investment Risks:** 1) Manufacturing enterprises face profit challenges, leading to decreased IT project budgets; 2) Large state-owned enterprises have longer accounts receivable periods.