Report guide
In 2021, H1's revenue grew rapidly by 89%, and its performance increased by 54%. Localization and bank IT upgrades are driving both ways, and the industry's boom is expected to continue for 3-4 years.
Key points of investment
Benefiting from the gradual implementation of Bank Xinchuang and the new cycle of IT system replacement, the company's performance grew rapidly.
In 2021 H1, the company achieved revenue of 1,253 billion yuan, an increase of 89% over the previous year; it achieved net profit of 44.7196 million yuan, an increase of 54% over the previous year. With the gradual increase in banks' demand for localization, the company's system integration and service business achieved revenue of 837 million yuan, an increase of 182% over the previous year. Furthermore, benefiting from the new cycle of bank IT system upgrades, the H1 software development and service business achieved revenue of 338 million yuan in 2021, an increase of 42% over the previous year.
System integration and explosive growth in services have led to short-term fluctuations in gross profit margin and operating cash flow.
Since the gross margin of the system integration and service business was lower than that of the software development and service business, the explosive growth of the system integration business in the first half of the year caused the overall gross margin to fluctuate, falling 9.71 pct. to 13.07% from the previous year. Furthermore, the company's operating cash flow fell 104.61% year-on-year in the first half of the year due to payment of a large number of integrated purchases.
Effective cost control, and taking advantage of the momentum of Jianxin Financial Technology to improve customer development efficiency and increase investment in R&D is beneficial to long-term development.
The 2021 H1 company effectively controls fees and has a close relationship with Jianxin Jinke, which can better improve customer development efficiency.
The company's sales expenses ratio and management expenses ratio decreased by 2.57 and 2.54 pct respectively in the first half of the year. In terms of R&D, the company continued to increase R&D investment in the first half of the year, with R&D expenses of 36.1978 million yuan, an increase of 48.85% over the previous year.
The industry cycle, localization, and system demand changes are combined, and the industry boom is expected to continue for 3-4 years.
Benefiting from the renewal cycle of bank core systems, system demand adjustments and technical architecture upgrades brought about by business mobility and internetization, banks have gradually migrated their systems to distributed systems, compounded by the need for localization under the influence of the international situation. It is expected that banks will undergo transformation one after another, and the industry boom is expected to continue for 3-4 years.
Profit forecasting and valuation
The company is expected to achieve net profit attributable to the parent company in 2021-2023 of 201, 284, and 402 million yuan respectively; year-on-year growth rates of 41% and 42% in 2022-2023; EPS of 0.45, 0.64, and 0.90 yuan; and PE corresponding to the current stock price in 21-23 is 25, 18, and 13 times. The company was given 35 times its target PE in 2021, corresponding to a total market capitalization of 7.6 billion yuan and a target price of 17.01 yuan, with room for increase of 49%, maintaining the “buy” rating.
Risk warning 1. Bank IT development falls short of expected risks; 2. Risk of brain drain.