Wangsu Technology's 1H22 performance is in line with our expectations
Wangsu Technology announced 1H22 results: revenue of 2,534 million yuan, up 23.31% year on year, net profit of 87 million yuan, down 4.73% year on year; in a single quarter, 2Q22 revenue was 1,302 billion yuan, up 28.08% year on year, and net profit of 35 million yuan, down 28.38% year on year. The company's traditional CDN business and new business are growing steadily, in line with our expectations.
Development trends
The volume of traditional CDN business and new business continues to grow, and revenue is growing steadily. By product, 1H22's CDN and edge computing revenue was 2,380 million yuan, up 22.77% year on year; IDC and liquid cooling revenue was 128 million yuan, up 31.63% year on year; and product sales revenue was 26 million yuan, up 36.90% year on year. 1H22's gross profit margin was 23.22%, down 2.89ppt year on year. Among them, CDN and edge computing gross margin fell 3.73 ppt to 23.16% year on year, IDC and liquid-cooled gross margin increased 11.97 ppt to 23.82% year on year, and product sales gross margin increased 6.00ppt to 25.71% year on year. We believe that as the company's product matrix continues to be improved, service capabilities are continuously optimized, and market competitiveness gradually increases, gross margin is expected to be repaired.
Cost reduction and efficiency are being actively promoted, and operating capacity is continuously optimized. The company's 1H22 sales/R&D/management expenses ratio was 6.82%/9.57%/4.88%, a year-on-year decrease of 2.47/2.99/2.08ppt, respectively. 2Q22's sales/R&D/management expenses ratio was 6.25% /8.95%/4.41%, down 3.16/3.73/2.68 ppt, respectively. 1H22's operating cash flow was 104 million yuan, down 73.49% year on year. Among them, the annualized turnover days for accounts receivable (215 days) were -68 days year on year, and the number of annualized turnover days for accounts payable (153 days) was -22 days year on year. We believe that as the company further advances in quality and efficiency, the annual fee rate is expected to narrow.
The product matrix continues to improve. In terms of CDN business and security business, on the basis of consolidating the existing market, the company launched CDN Pro, API security and management products, and education industry solutions. While improving the product layout, the company continues to cultivate vertical industries. In terms of cloud business, the private cloud/hybrid cloud business operator Aijieyun has completed the construction of a platform owned by core employees. Through product innovation and sales channel expansion, etc., it has created benchmark customer cases in the commercial, manufacturing, education, medical, media, finance and other industries, and accelerated market expansion in Southeast Asia. Data centers in Malaysia and Singapore have been officially launched.
Profit forecasting and valuation
Profit forecasts for 2022 and 2023 remain unchanged. The current stock price corresponds to 2022/2023 2.6/2.5 times EV/revenue multiple. Maintaining a neutral rating and a target price of 5.6 yuan, corresponding to the EV/revenue multiplier of 2.8/2.7 times in 22/23, there is room for a 5.5% increase from the current stock price.
risks
Competition in the CDN market intensifies, and new business development falls short of expectations