Ladies and gentlemen, good morning. I am Ivan Wong, the Investor Relations Director for AsiaInfo. On behalf of the management, I would like to welcome all of you to our interim results announcement. Other than the on-site meeting, we also have investors and friends dialing in online and also through telephone conferencing. We are going to conduct the session in Mandarin with English simultaneous interpretation. Please turn your mobile phones off or to vibration mode.
Allow me to introduce to you, we have Mr. Nianshu Gao, our Executive Director and CEO with us today. And Ms. Ying Huang, Senior Vice President and CFO. Today, our CEO will take us through our performance and operational highlights, followed by our CFO's presentation on financial performance. Finally, we will have the Q&A session, and we welcome your questions.
Now, Mr. Gao, please.
Good morning, everyone. I will first talk about the operating performance of the company in the first half. In the first half of 2023, we focused on quality development. We enjoyed a very good profit growth. Our operating revenue increased by 5.6%, with the absolute figure exceeding CNY 3.28 billion. As for our orders, for our overall business, we saw 20% growth, three new business growth 70%, gross profit 8.6% growth, gross profit margin up by 1 percentage point from last year, reaching 34.9%. Net profit growth 12.3%, standing at CNY 212 million. Net profit margin 6.5% up 0.4 percentage points. Basic earnings per share, RMB 0.24, up 14.3%. Operating cash flow improvement, 13.7% improvement. These are the major indicators for our performance.
We understand you are more concerned about our three new business. They continue to grow. Contribution to revenue increased to 33%. It takes up 33.3% as a percentage of operating revenue. There is a drop of 6% in revenue for digital intelligence-driven operation. As percentage of operating revenue, it is 13.9%, a drop of 1.7 percentage points. Among our three new business, vertical industries and enterprise cloudification revenue went up by 29.4%. Percentage of operating revenue went up by 2 percentage points. OSS increased by 14.9% in terms of revenue. Percentage of operating revenue increased by 0.7 percentage points, at 8.7%. These are the new businesses.
You are also concerned about digital intelligence-driven operation. How come there was a drop of 6% in revenue? There are two reasons. First of all, it is external in nature. Our DI business suffered from less capital market projects and lower demand for research reports in internet, consumer, and other industries, prompting a decline in revenue. With less IPOs in the market, the demand also declined. For the internet industry, there have been less research reports as well. So for such reports, there was a marked decline in the amount.
Internally speaking, after our acquisition, we have done some in-depth organizational changes with shorter term pain. In the past, we used to have TMT, automobile, and consumption, so we did a division according to industries, and we could also have geographical breakdowns. In the first half, we have done some changes to the organization. We combined industry-based and region-based calculations, optimizing the overall matrix sales structure. We enhanced regional coverage to answer customer demand more efficiently. For some time, of course, we need to adapt to such changes. So in the first half, we have spent quite a lot of time on such changes to our organization, driving certain impacts on our performance.
But on the upside, we are looking at less stress, and the stress is actually short-lived. We want our industries to be more independent and more clearly segregated from the traditional BU business. The traditional BUs, we will allow some time for the business units to understand the segregation, and we are going to run certain independent asset operations in the second half. We have seen rather good growth for various sectors. For example, energy. The revenue was up 167%, with major contracts secured. For example, in Tianwan, in Jiangsu, and also Zhangzhou in Fujian. These are dedicated 5G networks. Also transportation sector, including high-speed rail. In Chongqing, we have a big project with the contract sum exceeding CNY 600 million. This is going to be continuously attracting our focus.
Revenue from government affairs also went up by 40%. Continuous growth in sales, overall 29.4%, exceeding CNY 351 million. Energy, transportation, and government affairs enjoyed very good growth. For finance and postal, we also have some very good foundations that we will rely on our standardized products and solutions for different sectors. AsiaInfo offers digital IT products, standardized products, together with our industry solutions, covering energy, finance, transportation, postal, and government affairs to offer dedicated standardized products and tailor-made solutions. For the energy sector, it has become very important. I would like to single it out for some further discussion.
At the moment, we rely on our standard products, including dedicated 5G network products. Nuclear power for 5G coverage, 78 units is the total, and we have already covered 23 of them, which is 30%. For the total unit in the potential level, which is 78, we are already covering 23. We have Tianwan, Zhangzhou, Fuqing, Changjiang, Qinshan. All these major projects have already been covered by our efforts. Other than nuclear power, we also have wind power, hydrothermal, and solar. All these are potential client clusters. 5G coverage is less than 1% at the moment. We have 200 windmills. There are actually more than 5,000 stations in China. Solar, also the number is very big. Thermal, also very big.
Let's imagine if we cover all the windmills, we are talking about a huge market share. Other than nuclear power, we have less than 1% coverage in the generation market, so there is huge room for future development. We will continuously provide dedicated 5G network coverage and infiltrate into other sectors such as AIoT Edge computing, Internet of Things. In the future, other than energy systems, we will also continuously focus on transportation sector. For example, in the first half in Chongqing, we have this East Station integrated transport intelligent hub, which is a huge project. We place our standard products, IT and cloud products, RPA, HAI, 5G dedicated network products, et cetera. All these will be brought to Chongqing East Station project.
We will add our other solutions to the package so that we can support intelligent operations of the station. As for the next step forward, there will be similar projects, just like the Chongqing East Station. Under 14th Five-Year Plan, there will be 20 international integrated transportation hub cities and 80 national comprehensive transport hub cities. We have big data, AI, cloud, data bank, digital twin products that will support such operations of important hub cities. We also have highway projects. We will provide 5G dedicated networks as well. The third segment of our three new business, OSS, revenue grew by 14.9%. Innovation and upgrading of traditional network, they have provided a lot of opportunities to us.
The next step forward, we're going to add in GPT in the telecom operations so that we can provide new services to our clients. AIGC, which is the traditional technology, it will be placed into new networks to create new opportunities. OSS will continue to grow rather quickly. Other than the three new business, BSS, which is traditional business, is continuously growing steadily. Revenue grew by 1.7% in the first half. This was because of new technologies driving it forward. For example, of our solutions and services to government and enterprises, we're adding new technologies to original layout. We also have digital innovations, and we have a number of new clients.
In the first half, we have a new client. We upgraded the digitalization work for this new client, and we also provide billing services and internet services to CBN. Under BSS, we will continue to AIGC to provide them with new empowerment, driving new growth. In the BSS segment in the future, there will be steady growth. In terms of product innovation, in the past year, we continuously invested heavily in R&D. We invested CNY 505 million in the first half, accounting for 15.4% of revenue. Especially in new businesses, telecom GPT, we have set up this augmented cognition platform. We call it TAC MaaS. MaaS is Model as a Service. This platform provides telco augmented cognition toolkits, empowering different functions. We can use them on BI, customer service, network upgrading, optimization.
We are adding the telecommunication element to such services. In the future, we will continue to expand the usage to new projects. We're also working on 6G. We would like to launching white papers and standardization documents towards 6G so that we are better prepared, so that we can be the true market-leading software provider. We want to make contribution to future standardization. We continue to expand our orders on standard products, including cloud network products, digital intelligence, and IT products. With the smaller base figures, the growth seems more substantial. In the next few years, we'll continue to expand such products. With the scale going up, we believe we'll continuously improve our vertical business revenue and profit. We will be relying on our standard products and our integrated capability and various solutions entering different sectors and industries.
We do not just focus on integrated services. We need to offer our services with our solutions to different industries so that we can further empower them. We'll continue to drive up the sales of standard products, and then the profit will continue to grow when we enjoy the benefits of larger scale. Our technologies, we are getting better and better recognition. For cloud network, we are the true leader. Many international organizations run different activities, and we participate in them. We have been included under certain product awards. For example, we have become Forrester major vendor, and we continue to enhance our cloud capability, which is widely recognized by players domestically and internationally. In terms of our AI platform, AIOps, we have received a number of outstanding awards, and our 5G product have already entered Forrester's Vendor Matrix.
In terms of the digital arena, we have many products that are truly leading, not just in China, but also around the world. Our data bank and Timing systems and technologies and other equipment and facilities, we have been the forerunner as well. We have added 19 patents domestically, and two international ones have been obtained in the first half as well. In the process of applying, we are holding 1,300 odd software copyrights. In terms of standards, we have contributed 240 odd such standards. In terms of 3GPP, ITU, ETSI, IEEE, TMF, so on and so forth. We are active participants and also leaders in such organizations. We are a very important player. Our ranking has improved from 12- 11, and this year we expect to move up the ranking further.
In the second half, we will continue to maintain our revenue growth at a healthy level. We believe the revenue will go beyond the level last year. In terms of digital operations, there is a drop of 6%. We believe that segment will turn around in the second half. In the next few years, up to 2025. In the first half, 33% of revenue came from the three new business. The proportion will grow to 50% by 2025, and our business scale target is set at RMB 10 billion. In the second half, profit will continue to maintain rapid growth.
That is all for my presentation, and I will hand over to Ms. Huang for the financial performance.
Thank you, Mr. Gao. I would like to add some indicators and also in relation to cost. If you refer to page 16, these are some figures Mr. Gao already mentioned. This is the summary for financial overview. Page 17, I want to talk about revenue. Perhaps you have some concerns. A single-digit growth for the first half compared to double-digit growth in the past. We see revenue growth at 5.6%, and in the first half for new contracts, they represent in the second half and beyond, the growth is more than 20%, among which for growth for three new business over 70%. What does that mean? The momentum of signing new contracts may be a bit slow, but in the second half and beyond, they will realize a revenue pool. We are looking at very strong momentum for growth. We have a lot in the warehouse.
Secondly, for traditional business and three new business, the order split. In the first half, you see a 50/50 split already. New business in the first half this year has been enhanced to 1/3. By 2025, our target remains the same. The proportion should be about 50%. We need to enhance the proportion of contracts going into new business. We have to move continuously towards this 50% target, as Mr. Gao already mentioned. We continue on our path to this ultimate target of RMB 10 billion business. In terms of revenue, that is what is happening. The next page is about profit. You see things are looking very bright. Gross profit and GP margin both increasing.
Net profit, double-digit growth. Earnings per share, also very good return for our shareholders. Excellent indicators. I forgot about cost, I think. If we go back to our cost, you can see we have stable and healthy cost structure. For long-term financial planning and cost planning to drive business growth, if you look at cost structure, it is very healthy and stable. We have increase of 4% in terms of cost of sales, which means that the GP margin is really depending on this one. It is about our overall efficiency. R&D expenses, it really depends on the momentum of growth of revenue. At the moment, we are still within the original controllable range with a small increase of 3.7%.
Sales, the momentum is faster than the growth in our revenue, but still within controllable range. If you look at three new business in terms of the development, it is going to take up half of our revenue in the future. That means we have to continuously spend money in terms of selling and marketing, which increased by 9.5% in the first half. As a percentage of our operating revenue, it is within controllable range of 8.6%, which I believe is actually a very appropriate level. Admin expenses increased by 8% with one off factor here. We continuously want to reduce our cost and improve efficiency.
We have done optimization of our staff, and we have done quite a bit of staff optimization, and they have been included under admin expenses. If you take that aside, the true admin expenses actually represent a mild drop. Percentage of operating revenue is 5.1%. I think as in a standing at about 5% is very normal and healthy. The cost structure is effective. It is actually quite outstanding. I have talked about profit growth and as a summary, I would like to mention a few points. First of all, Mr. Gao has led the team of management. If you look at the fundamentals of our business, which is the most important, there are winters and also autumns and summers.
External situation is very complicated. The quality of our development and fundamentals have to be very well balanced. In terms of reform, reorganization, we have to balance these efforts with our overall development. The single digit growth in terms of our revenue and also digital operations are mild drop. These are short-term pains. For the sake of better long-term future, our goals remain the same. If you look at financial performance, this is what I would like to share with you. Also the revenue may be coming in slow, but the cash flow is getting stronger, 13.7% improvement, GP margin, net profit, and also fund flow back. Everything is improving. The fundamentals are very strong. We can overcome external changes.
Finally, in March this year, I shared with you some information and Mr. Gao asked us that we have to look at competitors and see what is happening to them as well. So far in terms of [Asia S] [audio distortion], we have chosen IT and software enterprises, 17 of them. According to their disclosed information, they have to disclose profit, but not much on revenue. In terms of profit, among 47 of them, 1/3 of them have profit growth. Basically among them, we are within the top 1/3 . There are not too many with double-digit growth. Our development, our indicators are following our overall strategies. We are on the right track. We are getting better and better. We will not change our future targets.
Thank you very much. We welcome questions from investors.
Thank you, Mr. Gao and Ms. Huang for your sharing. Now we will proceed to Q&A session. We will first take a question on site and then another from the telephone conferencing.
Thank you. I am from Morgan Stanley, and my name is Lily. About our latest GPT product, can you tell us more details about this application scenario? Can you quote some functions, real cases? What about the future business model? Is it following SaaS charging scheme or software or added service? Second question. We have the new GPT technology and how it develops with your business. What is the feedback from your clients? What do they think about the new product? Are they receiving it well? What about our competitors in the market? Is there any clear trends? Do we see a lot of SaaS switching to GPT? What is the overall thinking? How are we different from them?
Concerning GPT, we do not see it as an independent product to be launched into the market so far. It is positioned as something added on top of original products to provide new ways of empowerment. Our strength is about telecom scenario and data transmission. We are not offering anything generic. In many sectors, they may have different scenarios. They have traditional BI. They issue spreadsheets, and then traditional customer service, the sales channels, and network planning optimization, et cetera. For these parts, we can use GPT to add it on to increase efficiency and lower cost. It is like a function of the product or added usage for original products. At the moment, we are not just serving the telecom business. We have actually got more than 40 potential projects or opportunities, so we treat them as new functions being added to original products.
Smart customer service, sales system improvement, and code-generating devices. If you are in telecom, you need some equipment like that so as to enhance productivity. At the moment, in terms of our products, we can add this middle layer to any product, and it is compatible with different devices. We are just adding this new function to the middle layer, so that the overall device can mobilize such functions. Because there are many interfaces and portals, we can add this on as an additional function. Basically, we are focusing on telecom business. The next step, we can place it in other industries. As long as there is communication involved, we can treat it as newly added function for our original products. We do not launch it as a separate or independent product.
Thank you.
I am Charlie from Jefferies. Thank you for the sharing, and congratulations that you have obtained this very good result in challenging macro situation. For Chongqing East Station , CNY 600 million contract, can you share more about this project? Is it through open tender, or did you obtain it like another smart city project? How long is this project going to last? I also want to ask about energy. Nuclear coverage is 30%, power generation coverage less than 1%. I want to ask about your mid to longer term target. Number of stations, et cetera. Can you tell us more details? What about your overall market share, and what is the market scale?
Thank you very much. For Chongqing, it was open tender project. We relied on our own capability. We are not that high in terms of level of expertise, in terms of railway. There were two partners who participated in the bid. They focus on railway equipment and systems. They are very strong. All three of us joined this open tender, and we obtained the tender successfully. We got the project because we are very strong in product capability. Digital twin, 5G dedicated network, HAI. We have mature products, and we can showcase our products very well. Also, our integrated capability for the entire project. AsiaInfo, as a software company, we are representing part of the picture. Our software systems capability and control are very outstanding, but we do not have expertise in terms of railway.
We got the other two partners to participate in the open tender. It shows that in terms of product investment, we have very good and widely recognized product capability. In the exercise, we were successful. In the future, there may be similar projects under 14th Five-Year Plan. There will be optimization for 20 existing projects and then 80 projects, which are large scale at the hub level. They will have to be reestablished. Hopefully in the future, in terms of transportation hub projects, including city railway and also long-term transportation, and also metro system digitalization for such hubs will continue to happen with platforms for 5G data management, where our products will continue to shine. The cycle is about two years. For such a large scale, we can finish it in two years. We need good understanding of the project and sufficient funds.
You also asked about energy. Nuclear coverage is only at 30%. We have 23 units in operation or under planning. In terms of 5G network coverage, we will reach almost 100%. We want to get 80% out of that. At the moment, we are an important player, and after establishing the benchmark, we will have more units becoming our clients. As long as there is 5G coverage, we should be the most important player. We obtain this project also from public tender. In theory, when it comes to 5G, we are using the new 5G network, 78 units, all of them.
How big is the market? It is about CNY 10 billion- CNY 20 billion for 5G coverage, dedicated network. I am not talking about IoT or digitalization for other business systems. I am just talking about 5G network coverage, non-nuclear, including wind power, hydropower, thermal, solar. About CNY 10 billion- CNY 20 billion 5G dedicated network potential. The coverage is very small. We are covering part of wind power. In the future, there may be 30%-50% coverage, and it is already great opportunities ahead of us. We want to get 20%-30% market share, which already means a very big chunk of the pie.
Thank you, Mr. Gao. Next question.
I am from Citi. My name is Tina. I would like to ask Ms. Huang, in terms of orders, the growth is very strong. For the three new business, can you disclose more information in relation to digital operation or OSS? What is the proportion? Or at the moment, do you believe that in the second half, the vertical industries and OSS will take up bigger portions? What about delivery cycle for these contracts? How many will be delivered in the second half, turning the projects into real revenue? Second question. For digital operation, things will recover in the second half, but what about the momentum of recovery? Can you offer more insight?
And then for Mr. Gao, we can see operators are moving towards digital intelligence. So in this segment, the company has very strong capabilities in serving the operators. How will their projects drive development of new business for AsiaInfo? Because they are transforming in terms of ICT. So how much growth can you get from such transformation?
I'll talk about the orders. 70% to new business, which is taking up the majority. Traditional business is still going strong and steady, with a mild increase. For new business, vertical industries, OSS, followed by digital intelligence. That is for the second half, or accumulation or backlog of orders from the first half for the whole year. Digital intelligence operations will continue to go through in-depth transformation and reorganization. Changes to the entire organization. Last year, we completed a physical change.
This year, we have in-depth transformation and reform, because we need a process. We are going through the process, and we're coming to the end of this process. We have clear delineation of responsibilities, so we are maintaining the original targets. This year, in the first half, we have seen some negative growth. So in the second half, we have to catch up. No matter what happens in the second half, depending on the growth in our order level, for example, in July alone, things are recovering. For the whole year, we will turn things around. I think that is within expectation. So have confidence in us.
Thank you.
Digital intelligence operation in the second half, we would like to achieve two-digit growth. That depends on organizational transformation. Can we reach our targets? Because for O2B industries, they're all going through such changes. Because if you want to focus on government projects or large SOEs, you can't forget about the region. China is such a big place. You need different regions and segregations. But different industries have their own characteristics, so we need vertical approach and also horizontal approach. That is the big trend. In the past, some companies have already gone through such transformation. Some are just starting on their journey.
If we can adapt quickly, we can achieve double-digit growth in the second half. That is our aspiration. You talked about the one consolidation and three developments. Everything falls under new transformation. Whether our clients are transforming into a digital operator or a tech company, we're able to drive our BSS and OSS to grow. Digital intelligence operation partially come from digitalization or technological advancement or transformation or reform. I think we are always going to take the lead in reform. We are very dynamic. Earlier on, we have digitalization, digital intelligence operation, BSS.
You see it as a steady market. Why are we still growing? 1.9 last year. About 2% for the whole year. Why is that possible? Growth means you are retaining what you had originally, and you're adding something. So if we are talking about cloudification, for example, partially that was already completed in the first stage, such as Docker and microservices. Now we are talking about something that is native from the cloud, a native cloud. So that is something new. GPT is another new thing. LLM, GPT. What changes will be brought? What capability can be nurtured on our traditional products and services? We need iteration. We need upgrading. So BSS is presenting new opportunities and also OSS.
We have integration of cloud and network, and now we are combining network capability with computing capability. Integration is going to be the keyword. Together with AI empowering the traditional network, we do not stop. We continuously innovate so that we can enjoy growth. The growth really comes from change, and the same applies to all the operators or our clients. BSS, OSS will continue to be improved. On top of that, we have the vertical industries. We can enjoy the premium from changes of our clients. At the same time, we can take up the new opportunities coming from vertical industries. We have many products offered by telecom business, and we can also apply the same products to energy, finance and transportation so that we can drive for further growth.
That is the source of our growth. Because of our upgrading of our systems and products, we have accumulated a lot of experience. We can expand the use of certain products and services to different sectors such as energy and transportation. We offer different solution packages, so we will continue to be the major player in the next two decades or three decades. That is our growth story.
Thank you, Mr. Gao. From the telephone side, let's take a question. Operator?
Ladies and gentlemen, we welcome your questions by pressing star one. If you have a question, please press star one . Please press star one if you have a question. Please start your question.
Thank you, Mr. Gao. I have a small question about your finances. Your cash flow last year compared to 2022, operating cash flow CNY 549 million. But last year, it was CNY -549 million. So what is happening to the operating cash flow? Why such a fluctuation? Normally, we spend in the first half, and then things will flow back in the second half. So what has caused this situation? You talked about energy, transportation, government affairs. That means government projects. For such projects, do you only receive the money in the second half?
Thank you for your question. I will respond to that. AsiaInfo focus on large enterprises in terms of software engineering projects. Our company and all similar companies in terms of cash flows, there are strong seasonal impacts. So you are correct. In the first half, towards the end of Q3, we are net outflow of cash, and then Q4, very strong net influx of cash. So positive net inflow throughout the year if you are a good player, just like AsiaInfo. If you look at our performance since IPO, our history in the past 30 years is the same. Indeed, this is a typical and very common seasonal change. Negative in first half, and then for the whole year, we can maintain a net inflow.
Thank you.
Thank you, Ms. Huang. Can we take the next question?
Ms. Huang, another finance related question. GP margin in the first half went up. What is the main driver? Which segment? Last year, remember, GP margin showed a rising trend throughout the year. Are we expecting the same this year? Thank you.
GP margin increasing. We do not have a breakdown according to segment. We are talking about the overall platform. We have self-driven R&D. A t the moment, we don't have a very small breakdown. We are just offering this overall GP margin, which reflects the performance of our three businesses. Secondly, the major cost will be on the personnel, maintenance personnel. So higher GP margin for any project. We talked about standard products to enhance GP margin, and at the moment, we need to have stringent control of our personnel expenses. It can be done in various ways. We can have refined management, more mature management methods.
GPT can be used for internal R&D to enhance efficiency. At the moment, such personnel-related cost is the major part, and that has great bearing on GP margin improvement. Thirdly, for AsiaInfo, for suppressing cost and enhancing efficiency, things are running very smoothly in terms of our refined management methods. We have systems, we have methods, we have processes. We have strategies all the way to our budget, not annual budget, but quarterly budget. If you miss your budget target, things will stop coming to you. It's dynamic. I will look at things every month. If you fail your half-yearly target, there will be dynamic changes inside the system.
We have processes and methods which are very sophisticated, especially first half of this year. As you understand, the external environment was very complicated last year, so we'll continue to suppress our costs and enhance efficiency and have better control of our resources. For the whole year, we will continue to maintain the overall control of our cost and enhance efficiency as well.
I would like to add that for the longer term, our GP margin may not be increasing. AsiaInfo focuses more on quality of development. We do not want to pursue speed only. Therefore, in terms of managing our systems and processes, we are very sophisticated. In various projects, if you don't focus on the quality, it's very easy to fall into a trap. For example, vertical industries. Telecom is an outstanding business. For non-telecom business, when you're not familiar, whether it is government projects or other projects, you may fall into the trap. We have very strong gatekeeping work. We have expectations for certain projects.
There may be large projects, but the risk is too big, it's too risky, then we may give up on such projects since the very beginning. We have systems and processes keeping the gate. Secondly, we focus on quality. We continuously enhance the sales of standard products. For government sector and vertical business, we don't want to be an integrated company alone. We must have our unique product opportunities for me to obtain a certain project. Because GP margin can be enhanced when I sell more standard products into vertical industries. When I'm selling more and more of my products, then there are more and more vertical industries, and my GP margin will improve.
Some people may be concerned when there are so many vertical industries, perhaps GP margin will fall. Perhaps originally it may be lower than BSS, but when time passes by, our GP margin will steadily improve.
Thank you, Ms. Huang and Mr. Gao. Because of time constraints, let's see if there are any further questions on site or over the telephone.
If you would like to ask a question, please press star one. If you would like to ask a question, please press star one.
Because of time constraints, this is the end of today's results announcement. Thank you very much for your participation. If you have any further questions, please contact our investor relation team. Thank you.