How to maintain a high gross margin level?
On March 28, Longsoft Technology (688078) disclosed its annual report for the year 2023. In 2023, the company achieved a total operating revenue of 396 million yuan, a year-on-year increase of 8.56%; the net profit attributable to the parent company was 84.32 million yuan, a year-on-year increase of 5.39%.
During the reporting period, Longsoft Technology's basic earnings per share were 1.18 yuan, and the weighted average return on net assets was 12.42%. The company also announced its profit distribution plan for the year 2023, proposing to distribute a dividend of 3.6 yuan (including tax) for every 10 shares to all shareholders. Based on this calculation, the company's cash dividend payment for 2024 is close to 26 million yuan, and the company has maintained a dividend payout ratio of over 30% since its listing.
Longsoft Technology is undoubtedly a "small" company with a modest revenue scale, but it has a relatively high gross margin. The company's gross margin has been above 50% in recent years, and the net profit margin is also above 20%. In 2023, the company's sales gross margin reached 54.55%, an increase of 3.04 percentage points year-on-year. According to the data statistics of the third quarter report in 2023, the average gross margin of the Shenwan software development industry is about 49%.
The slowdown in procurement pace of coal companies has dragged down performance.
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Looking at the quarters, the company achieved a revenue of 144 million yuan in the fourth quarter of 2023, a year-on-year decrease of 5.01%; the net profit attributable to the parent company was 21 million yuan, a year-on-year decrease of 29.29%.
During an institutional research visit on January 19, Longsoft Technology stated that in 2023, the relaxation of import coal and other factors impacted coal prices, causing major domestic coal enterprise groups to slow down their bidding pace. It was not until the end of the fourth quarter that they began to recover, and the overall orders did not meet expectations, thus affecting the performance of the current period.
The annual report shows that the company's new order total in 2023 was about 460 million yuan, a year-on-year increase of 6.0%. CICC expects that the short-term disturbance of downstream prosperity may also put pressure on the company's performance in the first half of 2024.
Intelligent mining industrial software has become the most important product.
Intelligent mining industrial software is currently the most important product of the company. In 2023, this business achieved a revenue of 362 million yuan, a year-on-year increase of 10.7%, and its proportion has risen to 91.49%. Among them, the control platform business revenue exceeded 178 million yuan, accounting for more than 45% of the revenue, and the intelligent control platform was applied to more than 60 pairs of large and medium-sized mines under groups such as National Energy and China Coal Energy throughout the year; the intelligent geological guarantee business revenue exceeded 94 million yuan, with an increase of more than 70%, and more than 30 pairs of mines under groups such as National Energy, Shaanxi Coal Group, and China Coal Group were completed with intelligent geological guarantee projects (nearly 20 pairs were completed in 2022).
With the maturity of the company's products, the gross margin of intelligent mining industrial software in 2023 reached 54.48%, an increase of 4.31 percentage points year-on-year, which has driven the company's comprehensive gross margin to increase by 3.04 percentage points year-on-year to 54.55%.According to Northeast Securities' estimation, the current penetration rate of intelligent mining in China's coal mines is about 14.3%. By 2025, if coal mines with an annual output of more than 1.2 million tons achieve primary intelligentization, the corresponding market space would be 73.3 billion to 99.5 billion yuan. Northeast Securities maintains an optimistic attitude towards the industry growth and intelligent construction in 2024, believing that although the coal industry may face some fluctuations, it is still a relatively stable and growing industry overall, and the demand for intelligent construction in the coal industry remains relatively high.
Traditional GIS business enters a bottleneck period
LongRuan Technology is a leader in coal mine GIS, which is also the business that LongRuan started with. According to the company's previous disclosures on the interactive platform, over the past 20 years, LongRuan has sold GIS software to more than 1,800 large and medium-sized coal mines, with a market share of 82.9% in coal mines with an annual output of more than 1.2 million tons.
LongRuan GIS software, as an important part of the company's product system, only achieved a revenue of 14.92 million yuan in 2023, a year-on-year increase of 2.92%, and its business share has shrunk to 3.77%. The gross margin has also declined from a high of over 88% in 2018 to 74.77%.
In fact, since 2019, the sales of LongRuan GIS have gradually entered a bottleneck period, with revenue basically stable at around 15 million yuan per year. In response, LongRuan Technology launched its own cloud GIS subscription service in April 2023. From a business model perspective, the biggest advantage is the shift from selling software for individual projects to a sustainable subscription model.
According to First Financial, the annual subscription fee for the LongRuan Cloud GIS platform ranges from 10,000 yuan to 170,000 yuan, with the total cost of subscribing to all modules being about 340,000 yuan. This greatly reduces the initial investment in information technology projects and significantly lowers the threshold for small and medium-sized coal mines to use the technology, helping the company's products to be promoted and used across the industry. According to the company's disclosures on the interactive platform, there have been transactions for the cloud GIS subscription model in 2023, but most have adopted a one-time subscription for several years. The company plans to promote cloud GIS to the main users of current GIS products within three to five years.
Expanding overseas or into non-coal industries?
In terms of business layout, in 2023, the company's business in the North China and Northeast regions achieved operating revenues of 197 million and 34 million yuan, respectively, with year-on-year growth rates reaching 166% and 171%, showing significant growth. There has been a decrease in the Northwest and East China regions, while other regions have continued to maintain.
Regarding the expansion of business to the Southwest region, the company previously stated during institutional research that there are many coal mines in the Southwest, but the scale of individual coal mines is small, which may limit the demand for large-scale, high-cost solutions. They are more inclined to adopt standardized solutions. LongRuan's cloud GIS and standardized control platform, with a subscription model, may have more market space.
The company is also actively laying out overseas markets, hoping to promote its advantageous technologies and products to foreign coal mining enterprises within 3-5 years. In July 2023, the company signed a strategic cooperation agreement with the Russian Raspad Enterprise Group to assist in addressing the needs for industrial application software and equipment intelligentization. By the end of 2023, the intention to purchase some hardware equipment for the demonstration mine has been determined, and the next steps are currently underway.On December 7, 2022, the National Mine Safety Administration issued the "Overall Development Plan for the Safety Supervision and Inspection of Non-Coal Mines (2022-2024)". The plan mentioned the insufficiency of data mining capabilities in the safety supervision and inspection of non-coal mines, and the lack of information system support for some business operations, affirming the necessity for the development of information technology in the safety supervision and inspection of non-coal mines. Several provinces with a large number of non-coal mines have successively introduced guidelines for the intelligent construction of non-coal mines. The number of non-coal mines far exceeds that of coal mines, and their level of intelligence is even lower. The information technology standards for non-coal mines basically refer to the technical standards of coal mine informatization. The company stated in its annual report that Longsoft's smart mine solutions are applicable to non-coal mines, achieving the promotion of related technologies to other industries and exploring new development spaces.