Event: Dongtong released its annual report for 2021, the company achieved revenue of 863 million yuan in 2021, an increase of 34.80% over the same period last year; net profit of 248 million yuan, up 1.53%; and non-return net profit of 221 million yuan, an increase of 31.89% over the same period last year. The performance was lower than the market expected.
Main points of investment
The basic software business grew steadily, and the operating cash flow increased significantly: Q4 realized revenue of 471 million yuan, an increase of 7.24% over the same period last year, and net profit of 210 million yuan, a decrease of 10.18% over the same period last year, deducting 199 million yuan of non-return net profit, an increase of 4.40% over the same period last year. In 2021, the overall gross profit margin was 76.96%, a decrease of 2.98pct over the same period last year, and an overall net return of 28.74%, a decrease of 9.42pct over the same period last year. In terms of products, the revenue of basic software products was 333 million yuan, an increase of 23.62% over the same period last year, with a gross profit margin of 94.88% (year-on-0.12pct); revenue of safety products was 243 million yuan, an increase of 30.02%, and gross profit margin was 68.38% (year-on-5.10pct); revenue of intelligent emergency products was 163 million yuan, an increase of 67.94% over the same period last year, and gross profit margin was 67.58% (year-13.39pct). The revenue of the products from digital transformation of government and enterprises reached 124 million yuan, an increase of 42.68% over the same period last year, with a gross profit margin of 58.01% (year-on-year + 12.04pct).
On the expense side, due to the expansion of the company's sales scale, the sales expense rate increased by 7.45pct compared with the same period last year; the management efficiency improved, the management expense rate decreased by 0.95 pct; and the R & D expense rate decreased by 5.11pct. In 2021, the company's net operating cash flow was 2.55 yuan, an increase of 106.95% over the same period last year, mainly due to the increase in cash received from the sale of goods and services in 2021.
The increase in scale is expected to attract more strategic investors: on March 1, 2022, the company resubmitted its application for issuance to specific targets. The total amount of funds raised by the company's stock issue to specific objects does not exceed 2.2 billion yuan, and it is intended to be used for projects such as the excellent capability improvement of Tong series middleware products, the development of next-generation sustainable operation security products based on artificial intelligence, and supplementary liquidity. Compared with the previous fixed increase, this round of fixed increase will raise the amount of capital raised to 2.2 billion yuan, and at the same time, the previously adopted pricing issue will be revised to competitive offering, which more meets the capital needs of the company's business expansion. At the same time, it can also allow more strategic investors to participate.
Industry Xinchuang Lunar New year, the company fully benefited. In 2022, the industry Xinchuang has been rolled out in an all-round way, and the pace of Xinchuang in the financial and telecommunications industry is expected to exceed market expectations, especially the demand for Xinchuang servers will increase significantly, so there will also be a substantial growth in the middleware sector. Dongtong benefits most as a middleware leader, and while maintaining the advantages of the party and government market in 2022, it is expected to make further breakthroughs in the financial and telecommunications fields.
Profit forecast and investment rating: Dongtong, as the leader in the middleware industry, has a leading product performance. In 2022, the market scale of the party and government is expected to grow compared with the same period last year, and the market size of the industry is expected to double. We continue to be optimistic about its growth and performance elasticity. However, due to fierce competition in the industry, we downgrade Dongfang Tong's 2022-2023 net profit forecast of 3.17 (- 4.89) / 405 (- 745) million yuan, and 2024 return net profit of 535 million yuan, maintaining the "buy" rating.
Risk hint: the promotion of localization policy is not up to expectations; the intensification of competition in the industry leads to a decline in product prices.