Event: due to repeated outbreaks of the epidemic in major domestic cities and reduced demand for real estate construction, the overall demand for supply chain finance was under pressure in the first half of the year. The total amount of asset transactions handled by the company's technology solutions reached 115.9 billion yuan in the first half of 2022, an increase of 13.8% over the same period last year. During this period, the business structure changed, the proportion of businesses with low commission rate and high gross profit margin increased, and the revenue of the main business fell 3.1% year-on-year to 510 million yuan, of which the cloud revenue of core enterprises increased by 9.8% year-on-year to 290 million yuan. Cloud revenue of financial institutions fell 16.9% year-on-year to 190 million yuan, and cross-border cloud business revenue increased by 83.4% to 16.82 million yuan. During the period, the company's gross profit rose 4.2 per cent year-on-year to 420 million yuan, and its gross profit margin rose to 83.1 per cent from 77.4 per cent in 2021. The company's adjusted profit in the first half of the year was 130 million yuan, down 16% from a year earlier.

Summary of the report

Demand for real estate supply chain declined, and new core enterprise customers made up for 61.5 billion yuan of supply chain assets handled by core cloud enterprises in the first half of the year, an increase of 21.4% over the same period last year, of which AMS cloud business handled supply chain assets totaled 34.8 billion yuan, an increase of 4.2% over the same period last year. During the period, the company's customers from real estate enterprises contributed about 32% of the total transactions, compared with 42% in 2021. During this period, the company acquired new high-quality core enterprise customers, including China Mobile Limited, China Guangzhou Nuclear Power Corporation, Yihai Kerry, China Power Group, China Railway Construction and so on. The number of service customers increased 31% to 285 compared with the same period last year, making up for the decline in real estate customer demand. The total amount of supply chain assets handled by the multi-stage flow cloud business in the first half of the year increased by 54.9% to 22.6 billion yuan compared with the same period last year, still maintaining a high growth, thanks to the continuous expansion of the number of customers and the enhancement of supply chain penetration of existing customers.

The epidemic in first-tier cities repeatedly affected the financial cloud business affected by the epidemic control in East China in the first half of the year. In the first half of the year, the total assets of the cloud treatment supply chain of financial institutions increased by 4.1% to 49.2 billion yuan compared with the same period last year, of which ABS cloud business decreased by 10.5% to 16.4 billion yuan compared with the same period last year. The main reason is that the epidemic in the first half of the year affected the underconstruction of the project, the delay of the project and other factors, affecting the financing activities of suppliers in the upper reaches of the chain. Superimposed debt problems of private real estate enterprises, ABS business shrank in the first half of the year. In the first half of the year, the processing capital output of e-chain cloud increased by 13.3% to 32.8 billion yuan compared with the same period last year, which slowed down, mainly because the supply chain financing carried out by customers of financial institutions in first-tier cities was affected by epidemic prevention and control in the first half of the year.

With the rapid growth of cross-border business, the online financing business of small and medium-sized enterprises is strategically shrinking. Companies provide customers with one-stop digital cross-border trade and supply chain financing activities through cross-border cloud. The total amount of supply chain assets handled in the first half of the year increased by 59.9% to 4.6 billion yuan compared with the same period last year. Cross-border cloud revenue was 16.8 million yuan, an increase of 83.4% over the same period last year, mainly benefiting from the growth brought about by new cross-border product usage scenarios. In the first half of the year, the business income of credit technology solutions for small and medium-sized enterprises fell 44.4% to 12.54 million yuan compared with the same period last year, mainly due to the company's comprehensive consideration of the macroeconomic environment and regulatory policy changes, decided to strategically shrink the business.

Investment recommendations were affected by repeated epidemics and macro-economy, and the overall supply chain financing activities were under pressure in the first half of the year. The company's assets in the supply chain grew by 13.8% against the trend, reflecting the company's resilience to the uncertain market environment. Taking into account the subsequent cooling of private real estate financing activities and the recurrence of the epidemic in the second half of the year, we downgraded the company's revenue and profit forecasts for the next three years, giving the company a target price of HK $6.87 according to the 2023 revenue 9xPS, corresponding to the 2022E/2023E/2024E forecast PE is 48.4x/34.7x/26.3x price-to-earnings ratio, which is 31.4% higher than the recent closing price, maintaining the "buy" rating.

Risk tips: policy uncertainty risk; macro-economy makes the supply chain capital demand below expectations; the impact of the epidemic on supply chain market activities; competitor bidding risk and so on.