The revenue in the first half of 2021 and the performance in the second quarter exceeded our expectations. Donghua Software announced its results for the first half of 2021: revenue was 4.518 billion yuan, up 24.1% from the same period last year; net profit from home was 453 million yuan, up 129% from the same period last year; deducting non-return net profit was 448 million yuan, up 15.0% from the same period last year. The company strengthened the software product upgrade in the first half of the year, and the project implementation recovered faster than expected after the epidemic, resulting in 1H21 revenue exceeding our expectations, profit performance in line with our expectations and quarterly performance exceeding our expectations: the company's 2Q21 achieved revenue of 2.488 billion yuan, an increase of 30.1% over the same period last year, and an improvement of 12.6ppt on the basis of a year-on-year growth rate of 17.5% in 1Q21. The net profit of returning to the mother in the second quarter was 340 million yuan, a sharp increase of 40.1% over the same period last year. The impact of the epidemic basically digested that the company's performance significantly picked up, and its revenue and profit performance exceeded our expectations.
Trend of development
There are many bright spots in financial performance, and the performance of the industry is impressive. Sales structure optimization: 1H21, the company's software + technical service revenue accounts for 46.2% of revenue. Compared with 2020, the product degree of 124ppt's business has gradually improved, helping the gross profit margin to continue to rise, and 2Q21's comprehensive gross profit margin has increased by 88p to 37% compared with 1Q21. A number of industries have performed well: the company's 1H21 income from government clients has risen by 63.1%, mainly due to the post-epidemic project, the Real Smart City project.
As a result of cashing in income. The company also performed well in the financial health industry, with revenue growth of 27% year-on-year. With the launch of Donghua Medical's SaS subscription model for the Smart Hospital operating system (HOS), we expect to further improve its product delivery efficiency and contribute to steady cash flow growth.
The ecological construction of the intelligent industry goes up to the next floor, and the abundant performance of hand-on-hand orders can be released. In the medical industry, Donghua Medical helps the company upgrade its software products in order to continuously build HOS, Urban Intelligent Medical operating system (CMOS) and intelligent health care communication terminal. In the smart city area, the company has more than 30 product matrices, including digital government affairs, digital countryside and smart travel, to help the company fully meet customer needs and help Donghua Smart City Group increase its 1H21 order volume by 50% compared with the same period last year. In the field of wisdom, literature and travel, the company has won hundreds of millions of yuan of orders, including the Nanning project jointly awarded with Tencent and Zhongcheng Investment (600 million yuan). In the field of smart housing and construction, the company's 1H21 orders increased by 15% compared with the same period last year, among which the contracts for the main digital twin park and residential construction cloud platform increased by 130% compared with the same period last year. The company's 2Q21 contract liabilities increased by 41%. We believe that the company has plenty of orders on hand, which can support the company's income release in the second half of the year. We suggest that we should continue to pay attention to the progress of software production and revenue model transformation.
Profit forecast and valuation
We maintain the 202l/2022 annual profit forecast basically unchanged, maintain outperform industry rating and 90 target price. The target price is based on a valuation of 35 times 2021 earnings, with 22.09% upside from the current share price. The current share price corresponds to a price-to-earnings ratio of 3022 times 2021 pound 2022.
Risk
The landing of the policy is not as expected; the transformation of the business model is not as expected; the market competition is intensified.
