Summary of Zhongwang Software Conference Call Company Overview - Zhongwang Software has undergone internal adjustments, reducing its workforce from a peak of 2,100 to approximately 1,800 employees, enhancing operational efficiency through strategic planning and advanced management systems [1][3] Core Business Focus - The company aims to refocus on its core CAD business, aspiring to become a leading CAD vendor globally, optimizing its geometric kernel, and advancing related product lines [1][5] - A significant shift in the business model is underway to improve per capita output and long-term competitiveness [1][5] International Market Strategy - Zhongwang has established a comprehensive framework for international markets, with a distribution model accounting for over 90% of its performance [1][6] - The company is actively promoting international business development through frequent high-level visits to key markets, including the US, Mexico, Europe, and the Middle East [1][6] Product Development and Growth - The 3D product line is projected to grow nearly 30% in 2024, although future growth will depend on product breakthroughs due to diminishing policy support [1][7] - The FM project is a critical initiative for 3D product development, expected to be available to select users by September 2025 and officially launched in the first half of 2026 [1][9] Financial Performance - In Q1 2025, Zhongwang reported single-digit growth with a decline in profits; however, net profit excluding non-recurring items increased [2] - The company has implemented a personnel control strategy to enhance efficiency while achieving business growth, with channel business share rising from 9% in 2023 to 14% in 2024 [1][10] AI and Technology Strategy - Zhongwang maintains a neutral stance on AI, believing current AI-generated value does not meet customer expectations; the focus will be on 3D technology in 2025, with plans to fully invest in AI by 2026 [4][19] - The company is exploring AI applications to enhance internal efficiency before fully integrating AI into its offerings [19] Distribution and Profitability - The growth of the distribution business is expected to enhance gross margins and net profits, with international distribution margins being approximately double those of direct sales in China [4][22] - The company plans to increase its distribution share in the Chinese market to 50% over the next few years [4][15] Product Improvements - The new version of Zhongwang 3D aims for improved stability and enhanced modeling capabilities, supporting up to 8,000 steps in complex designs [23] Market Trends and Challenges - The domestic 2D market remains stable, with no significant decline, while the education sector has faced challenges due to policy changes [31][33] - The company is actively addressing the decline in the education sector and anticipates recovery in the latter half of 2025 [33] Future Outlook - Zhongwang's overseas business currently accounts for nearly 25% of total revenue, with plans to increase this share by investing in markets such as Japan, Southeast Asia, and Europe [35] - The company is focused on long-term growth and improving investor returns despite short-term stock price fluctuations [24][36]

Investment Rating - The investment rating for the company is "Buy" with a current price of 94.66 CNY and a fair value of 110.34 CNY [3]. Core Views - The company is expected to continue experiencing high growth in its overseas markets, while domestic demand still has room for contribution. The overall revenue growth is projected to be steady, with a focus on optimizing core products and expanding into international markets [1][7]. Financial Performance Summary - In 2024, the company reported a revenue of 888 million CNY, a year-on-year increase of 7.31%, and a net profit attributable to shareholders of 64 million CNY, up 4.17% year-on-year. The first quarter of 2025 saw a revenue of 126 million CNY, reflecting a 4.56% year-on-year growth [7][8]. - The company’s revenue is projected to grow from 1.03 billion CNY in 2025 to 1.56 billion CNY in 2027, with respective growth rates of 15.9%, 22.2%, and 23.9% [2][20]. Revenue Breakdown - The revenue from standard general software reached 769 million CNY in 2024, with a growth of 9.93%. The 3D product revenue was 242 million CNY, growing by 29.21% [11]. - The overseas revenue for 2024 was 202 million CNY, marking a 28.77% increase, which accounted for 22.8% of total revenue [19]. Profitability Metrics - The company’s EBITDA for 2024 was 79 million CNY, with a projected increase to 132 million CNY in 2025. The net profit margin is expected to improve significantly in the coming years, with net profits projected to reach 275 million CNY by 2027 [2][20]. Cost Management - The company has managed to reduce its sales expenses by 4.87% year-on-year, while R&D expenses increased by 14.45%, reflecting a focus on innovation and product development [10][19]. Market Position and Strategy - The company is positioned as a leading player in the CAD software market, with a strong emphasis on 3D product development. The strategy includes enhancing product capabilities and expanding into high-end manufacturing sectors [19][24]. - The company’s global expansion strategy has shown initial success, with significant revenue growth in overseas markets, particularly in the Asia-Pacific, Europe, and Americas regions [19]. Valuation Analysis - The company is valued at a PS ratio of 13x for 2025, reflecting its unique position as the only A-share listed company with self-controlled 3D CAD software capabilities. This valuation corresponds to a fair value of 110.34 CNY per share [24].

Investment Rating - The report maintains a "Recommendation" rating for the company [1] Core Views - The company achieved a stable revenue growth with a 2024 revenue of 888 million yuan, representing a year-on-year increase of 7.31% [4][7] - The net profit attributable to shareholders for 2024 was 64 million yuan, up 4.17% year-on-year [4][7] - The company is expanding its Xinchuang ecosystem, enhancing its CAD product capabilities based on the Linux platform [10] - The report projects net profits for 2025-2027 to be 81 million yuan, 105 million yuan, and 137 million yuan respectively, with corresponding EPS of 0.67, 0.87, and 1.13 yuan [10] Revenue and Profit Summary - In 2024, the company's revenue from standard general software was 769 million yuan, a 9.93% increase, with specific product revenues as follows: 2D CAD at 482 million yuan, 3D CAD at 242 million yuan, and CAE at 973.84 thousand yuan [7][8] - The gross margin for 2024 improved by 0.75 percentage points, while the expense ratio decreased by 0.47 percentage points [7] Financial Projections - The company forecasts revenue growth rates of 17.8%, 19.4%, and 21.5% for 2025, 2026, and 2027 respectively [12] - The projected net profit growth rates for the same years are 26.9%, 29.4%, and 30.4% [12] - The report indicates a steady increase in the company's return on equity (ROE), expected to reach 4.6% by 2027 [12] Cash Flow and Financial Ratios - The operating cash flow is projected to turn positive in 2025, reaching 169 million yuan [13] - The company maintains a strong liquidity position with a current ratio of 5.7 in 2024, expected to decrease gradually to 4.8 by 2027 [12] - The debt-to-asset ratio is low at 15.0% for 2024, projected to rise to 19.3% by 2027 [12]

Investment Rating - The report maintains a "Recommendation" rating for the company [1][12] Core Views - The company achieved a stable revenue growth, with a reported revenue of 888 million yuan in 2024, representing a year-on-year increase of 7.31%. The growth is attributed to the continuation of a major client strategy and the optimization of core product performance [4][7] - The net profit attributable to the parent company for 2024 was 64 million yuan, reflecting a year-on-year growth of 4.17%. The company focused on resource allocation and cost optimization, leading to improved profitability [4][7] - The company is expanding its CAx integrated solution offerings and enhancing its product capabilities in the 2D CAD, 3D CAD, and CAE fields, which are expected to support its long-term sustainable development [7][8] - The company is further expanding its Xinchuang ecosystem, significantly improving its CAD product capabilities based on the Linux platform, which enhances its competitive edge in the CAD Xinchuang field [8] Financial Summary - For 2024, the company reported a revenue of 888 million yuan and a net profit of 64 million yuan. The revenue is projected to grow to 1.05 billion yuan in 2025 and 1.37 billion yuan in 2027, with corresponding EPS of 0.67 yuan and 1.13 yuan [4][9] - The gross margin for 2024 improved by 0.75 percentage points, while the expense ratio decreased by 0.47 percentage points, indicating better cost management [7][10] - The company's total assets are projected to increase from 3.17 billion yuan in 2024 to 3.64 billion yuan in 2027, with a stable debt ratio of around 15% to 19% over the same period [9][10] Growth Projections - The company expects a revenue growth rate of 17.8% in 2025, 19.4% in 2026, and 21.5% in 2027, indicating a strong growth trajectory [10] - The net profit growth is projected to be 26.9% in 2025, 29.4% in 2026, and 30.4% in 2027, reflecting the company's focus on enhancing profitability [10] Valuation Metrics - The report estimates the P/E ratios for 2025, 2026, and 2027 to be approximately 134.7, 104.1, and 79.8 respectively, suggesting a favorable valuation outlook as earnings grow [10][11]

Investment Rating - The report maintains a "Buy" rating for the company [3][5]. Core Viewpoints - The company's 2024 annual report shows that it achieved operating revenue of 888 million yuan, a year-on-year increase of 7.31%, and a net profit attributable to shareholders of 64 million yuan, up 4.17% year-on-year, which aligns with expectations [1]. - The 2D product line provides a stable revenue base, while the 3D products are the main growth driver, with 3D CAD product revenue increasing by 29% year-on-year [1]. - The overseas business has shown rapid growth, with a main business revenue growth rate of 28.77% in 2024, contributing positively to overall performance [2]. - Continuous investment in R&D is aimed at solidifying competitive barriers in the CAx field, focusing on an integrated CAx solution that enhances product differentiation [3]. Financial Summary - In 2024, the company reported operating revenue of 888 million yuan, with a growth rate of 7.3% year-on-year, and a net profit of 64 million yuan, reflecting a growth rate of 4.2% year-on-year [4]. - The projected net profits for 2025, 2026, and 2027 are estimated to be 71 million yuan, 82 million yuan, and 92 million yuan respectively [3][4]. - The earnings per share (EPS) for 2024 is projected at 0.53 yuan, with a net asset return rate of 2.4% [4].

Core Viewpoint - Zhongwang Software announced the termination of its 2022 employee stock ownership plan due to unmet performance conditions across all three vesting periods, reflecting a significant decline in financial performance since its IPO [1][5]. Group 1: Employee Stock Ownership Plan - The 2022 employee stock ownership plan had ambitious revenue growth targets of 30%, 69%, and 119.7% for the years 2022, 2023, and 2024, respectively, with trigger values set at 25%, 56.25%, and 95.31% [2][3]. - The plan's termination was attributed to the failure to meet these performance conditions, with revenue growth rates of -2.86%, 33.76%, and 43.46% from 2021 to 2024 [5]. - Despite the plan's termination, employees participating in the plan still hold shares with a market value exceeding 100% of their purchase price, although the company faces a nearly 30% loss on the repurchased shares used for the plan [6][5]. Group 2: Financial Performance - Zhongwang Software's revenue from 2021 to 2024 was reported as 619 million, 601 million, 828 million, and 888 million yuan, respectively, indicating a decline in 2022 followed by modest recovery [5][7]. - The company reported a net profit of only 600,000 yuan in 2022, a 96.7% decrease year-on-year, while the non-recurring net profit showed losses of 67.41 million yuan, a 167.82% decline [7][8]. - In 2024, the company received over 65 million yuan in government subsidies, which exceeded its net profit of 63.96 million yuan, highlighting reliance on external financial support [7][8]. Group 3: Cost Structure and Profitability - Research and development expenses have been increasing significantly, with amounts rising from 203 million yuan in 2021 to 446 million yuan in 2024, leading to a net profit margin decline from 29.36% to 5.45% [10][11]. - The company has also faced challenges with goodwill impairment, particularly following the acquisition of Beijing Bochao Software, which resulted in a goodwill impairment of 1.67 million yuan [11]. - Despite these challenges, the company maintains a strong cash position, with 1.97 billion yuan in cash and short-term investments, and minimal debt [11]. Group 4: Market Position and Future Outlook - Zhongwang Software operates in a competitive environment with increasing domestic software replacement, yet it has not capitalized on this trend effectively in recent years [9][12]. - The CAD industry has seen a cooling in investment activity since 2024, which may impact future growth prospects for Zhongwang Software [9][12]. - Analysts suggest that the company could benefit from its technological advantages and market position as the industry undergoes a rationalization phase [12].

Investment Rating - The report maintains a "Buy" rating for the company, indicating an expected price increase of over 15% in the next 6-12 months [13]. Core Views - The company's performance in Q1 aligns with expectations despite ongoing pressure on downstream demand. Key factors include the continuous improvement of domestic channel networks and successful collaborations in high-tech electronics and equipment manufacturing [9]. - The revenue forecast for FY25-27 has been adjusted to 1.022 billion, 1.177 billion, and 1.356 billion RMB respectively, with corresponding net profit estimates of 0.75 billion, 0.98 billion, and 1.34 billion RMB [8]. Financial Summary - **Revenue and Profit Growth**: - FY24 revenue is projected at 888 million RMB, reflecting a year-on-year growth of 7.31%. The net profit for FY24 is estimated at 63.96 million RMB, with a growth rate of 4.17% [7][8]. - **Earnings Per Share (EPS)**: - The diluted EPS is expected to increase from 0.506 RMB in 2023 to 1.108 RMB by 2027, indicating a strong upward trend [7]. - **Return on Equity (ROE)**: - The ROE is projected to rise from 2.29% in 2023 to 4.63% in 2027, showcasing improved profitability [7]. - **Price-to-Earnings (P/E) Ratio**: - The P/E ratio is expected to decrease from 196.63 in 2023 to 85.41 in 2027, suggesting a more attractive valuation over time [7]. Product and Market Analysis - **Product Performance**: - The standard general software segment generated 769 million RMB in FY24, with a growth of 9.93%. The 3D product line saw a significant increase of 29.21%, contributing to 27.34% of total revenue [8]. - **Geographical Revenue Breakdown**: - Domestic revenue reached 685 million RMB in FY24, growing by 2.74%, while overseas revenue surged by 28.77% to 202 million RMB, indicating strong international demand [8]. Cost and Expense Management - **R&D and Operating Expenses**: - R&D expenses accounted for 50.23% of revenue in FY24, reflecting a commitment to innovation. Sales and management expenses were effectively controlled, with sales expenses decreasing by 5.96% year-on-year [8].

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