Introduction to this report:
The turbulence in accounting standards and the pace of acceptance affected Q2 results. It is expected to recover in Q3, the industry will continue to be booming, and the long-term upward pattern will not change
Key points of investment:
Maintain the “increase in holdings” rating and maintain the target price at $64.11. Maintaining the profit forecast, 2021-2023 EPS was 1.05, 1.90, and 3.09 yuan respectively. Maintain the target price of 64.11 yuan and maintain the “increase in holdings” rating.
The second-quarter results were slightly lower than expected, mainly due to adjustments in accounting standards and the pace of customer acceptance. During the reporting period, the company achieved operating income of 780 million yuan, an increase of 44.85% over the previous year, and achieved net profit of 76.5446 million yuan, an increase of 50.64% over the previous year. The performance was slightly lower than expected. We think there are two main reasons. One is that the company's accounting standards for new projects were changed from the completion half-ratio method to the final method. Second, since the pace of major customer acceptance at 630 points in time was affected by the incident, we learned that this is a common phenomenon in the industry. The combination of the two factors led to a decline in revenue growth in the second quarter. We judge that apparent performance will recover in the third quarter.
The industry continues to be booming, and the growth rate has reached a record high. In 2020, the IT solutions market size of the Chinese banking industry increased 25.20% year-on-year, reaching a record high. The average IT spending growth rate of the six major banks was 33.50%. The company's customers cover 96.15% of banks with assets exceeding 300 billion dollars, perfectly meeting the release of industry demand.
Technology hosting by Xiaowei Bank may become a trend, and the company has already set up ahead of schedule. In the rapid growth of IT investment in the industry, the ability of small banks to build IT on their own will be tested, so we judge that in the future, the IT business model of small banks may change to a hosting model, and the business models of IT service providers will also usher in changes. The company has already set up SaaS tier technology hosting services for Xiaowei Bank in advance. The business model will soon improve, and profitability will also increase significantly.
Risk warning: Industry innovation progress falls short of expectations; risk of rising labor costs