Event: the company released its interim results for 2022, with revenue of 3.1 billion yuan, an increase of 14.5% over the same period last year, of which the traditional BSS business was 2.1 billion yuan, down 2.1% from the same period last year, mainly due to delays in delivery and acceptance of new orders due to the epidemic. The total revenue of the three new businesses (OSS, vertical industry / enterprise cloud, and digital operation DSaaS) totaled 1 billion yuan, up 81.4% from the same period last year, and the proportion of revenue expanded to 32.3%; gross profit margin was 30.9%, down 2.8% compared with 1H21, mainly because the epidemic affected the delivery efficiency of the project; the net profit of returning to the mother was 190 million yuan, down 31% from the same period last year, and the corresponding net interest rate was 6.2%.

1H22 is under short-term pressure on profitability affected by the epidemic, and it is expected that 2H22 profits will return to growth: as the company's traditional carrier business and enterprise cloud business rely on on-site delivery, the 1H22 epidemic has affected the delivery progress of the project, and the revenue recognition has been delayed, so the company's overall profitability is weak, with gross profit margin and homing net profit margin falling by 2.8 percentage points and 4.1 percentage points respectively compared with the same period last year. We expect that with the weakening of the impact of the epidemic, the company's BSS business will return to positive growth, the three new businesses will maintain rapid growth, and the profitability brought about by improved delivery efficiency of superimposed projects will be restored. We expect the company's homing net profit for 22 years to achieve double-digit growth.

Traditional operators' business growth is weak, relying on cloud business to open up future growth space: as the company's traditional operator business BSS and OSS income is highly related to operators' capex and opex investment, as operators enter the late stage of 5G construction, the growth of related revenue weakens, we expect that the company's operator business will maintain low single-digit growth in the later stage, and the growth drive will mainly come from the relatively late development of OSS business. In the future, the company will rely on vertical industry / enterprise cloud and DSaaS digital operation to expand non-operator market customers in parallel in order to open up new market space. The revenue of 1H22 from vertical industry / enterprise cloud business and DSaaS business is 2.7 / 480 million yuan respectively, an increase of 140% and 57% respectively over the same period last year, and the proportion of revenue has increased to 9% and 16%. Benefiting from the rapid growth of China's cloud computing industry as a whole and the dividend of the development of the digital economy, the company binds the operator DICT strategy to expand together, and the cloud business is expected to achieve rapid growth. We expect the revenue of DSaaS business and vertical industry / enterprise cloud business to be 31% and 51% respectively, and the revenue share in 25 years is expected to increase to 20% CAGR 21%.

Profit forecast, valuation and rating: considering the improvement of the company's project delivery efficiency after the 2H22 epidemic is alleviated, the profit pressure trend will be alleviated, and the return net profit forecast for 22-24 will be maintained at 8.69 RMB 9.70 / 1.07 billion RMB, corresponding to a year-on-year growth rate of 11%, 12% and 11%, respectively. The company's latest price of HK $12.44 corresponds to 11 times PE in 22 years, with a certain margin of valuation safety, steady growth and a stable dividend mechanism. In the future, switching to the PS valuation method after the volume of DSaaS business is expanded is expected to open the valuation space, maintain the target price of HK $14.8 (corresponding to 13 times PE in 22 years), and maintain the "buy" rating.

Risk hint: operator IT investment decline; new business transformation is not as expected.