Event:

On November 8, 2024, the Standing Committee of the National People's Congress approved an increase of 6 trillion yuan in the local government debt limit to replace existing implicit debt. In addition, at the press conference of the General Office of the Standing Committee of the National People's Congress held on the afternoon of the 9th, the Minister of Finance also introduced that starting from 2024, China will arrange 800 billion yuan of new local special bonds every year for five consecutive years, totaling 4 trillion yuan.

Over the past four years, the pressure on receivables in the computer sector has been increasing. The IT construction mainly supported by financial funds covers many contents and directions, mainly including government IT, smart city, medical IT, education informatization, party and government information innovation and other fields, in addition, security, network security and other industries, the proportion of government customer income is also high. Therefore, among the 328 listed companies in the computer sector, there are not a few enterprises whose business is affected by financial funds. According to statistics, from 2020 to 2023, the proportions of (accounts receivable + notes receivable)/revenue will be 30.1%, 30.9%, 34.0% and 35.4% respectively (after excluding Digital China and Guolian Co., Ltd., two enterprises with higher income), while in the median view, the relevant proportions are 36.9%, 37.8%, 43.8% and 46.9%, and the values are constantly increasing. The

provision of bad debts caused by receivables is also the main reason for the pressure on industry profits. The continuous increase in accounts receivable not only reduces the quality of the balance sheets of many listed companies in the computer industry, but also affects the profitability of enterprises through the provision of bad debts. We found that in the past few years, the total amount of bad debts in the sector has increased rapidly, reaching 21.93 billion, 25.11 billion, 35.52 billion, and 42.15 billion respectively from 2020 to 2023, while the total non-net profit deducted from the sector in the same period will be 26.24 billion, 27.99 billion, 12.58 billion, and 7.38 billion respectively; From the median point of view, the median bad debt provision (credit impairment loss + asset impairment loss from the sum of bad debt provision) of more than 328 companies was 22.68 million, 27.63 million, 37.5 million and 53.75 million respectively. Therefore, the growth of bad debt provision is one of the important factors for the decline in the profitability of the industry in the past three years.

Governmentized debt and clearing corporate arrears are conducive to the improvement of the fundamentals of the sector. We expect to have a positive impact on the recovery and settlement of receivables from past informatization projects, thereby improving the profitability of the computer sector and the quality of statements. On the other hand, the reduction of local government debt pressure is also conducive to the expansion of demand for digital and intelligent projects supported by the budget (including government digitalization, medical informatization, education informatization, information innovation, and network security) in the future, thus enabling the industry to enter a more benign growth channel. We believe that the field of information innovation and network security is relatively clear in terms of financial support, and financial informatization has also benefited from the digital construction of financial fund allocation and supervision.

Information Innovation and Localization: It is recommended to pay attention to China Software (600536, not rated), Zhongfu Information (300659, not rated), Baoland (688058, not rated), Kirin Xinan (688152, not rated), Sugon (603019, Buy), ArcherMind Technology (300598, not rated), Taiji (002368, not rated), Jida Zhengyuan (003029, not rated).

Government digitalization: Boss Software (300525, not rated), Zhongke Jiangnan (301153, not rated), Xindian Software (688232, Buy), Digital Government Communication (300075, not rated), Aerospace Hongtu (688066, overweight), Taxfriends (603171, buy), SDIC Intelligence (300188, overweight).

Cyber security and other areas: It is recommended to pay attention to Anheng Information (688023, overweight), Qianxin-U (688561, not rated), NSFOCUS (300369, buy), Tianrongxin (002212, buy), Venustech (002439, not rated), Shengbang Security (688651, not rated), iFLYTEK (002230, buy), Weining Health (300253, not rated), Jiahe Mecan ( 688246, not rated).

Risk Warning: The

risk that the policy will not meet expectations;