Affected by macro factors, results in '22 were lower than expected
The company's revenue fell 1.3% year-on-year to HK$77.32 billion in '22. Mainly due to factors such as the pandemic, the decline in enterprise system business revenue and the slowdown in the growth rate of the consumer electronics business. Combined with the strong Hong Kong dollar exchange rate, the Southeast Asian business book revenue was affected by the strong exchange rate of the Hong Kong dollar, while the cloud computing business continued to grow rapidly. The company's gross margin fell 0.3 percentage points year over year to 4.4%; net profit fell 37.4% year over year to HK$823 million, lower than our expectations, mainly due to lower revenue than expected, financial expenses higher than expected due to lower than expected revenue, sharp interest rate hikes in the US dollar, and profit attributable to associated companies falling short of expectations. The number of operating turnaround days increased from 46 days in the same period last year to 50 days, maintaining a healthy level.
The cloud computing business continued to grow rapidly. Cloud computing business revenue from the further large-scale integration of cloud resources increased 23.4% year-on-year to HK$2.89 billion, accounting for 0.7 percentage points to 3.7% over the previous year. According to IDC data, the company's market share of third-party cloud management services in China remained fifth, and cloud service revenue growth ranked second. The company further promotes the full life cycle service management of cloud computing. Specific measures include:
(1) Launched the first vPlus virtual cloud platform jointly built with Alibaba Cloud, and cooperated with Baidu Cloud, Alibaba Cloud and many cloud solution vendors to sell products and solutions on the platform; (2) Improve the Jiajie Cloud Star hybrid cloud management platform, fully support localized compatible architectures, and become one of the first operation management platforms in China to integrate computing power. The company continues to strive to become the largest integrated cloud service provider in Asia, and expects further development of cloud resource management, sales and service integration and scaling in the future.
The slight increase in consumer electronics bucked the trend and highlighted competitive advantage. It is expected to resume relatively rapid growth in the second half of the year, benefiting from extensive product coverage and channel advantages. The consumer electronics business continued to grow 2.5% to HK$33.08 billion despite industry weakness. The company continued to increase the market share of existing brands, ranked first in the market share of many brands, and continued to expand new products. The launch of new iFLYTEK and PICO products increased during the year, and became the largest distributor of iFLYTEK and the only distributor of some products with its channel management advantages. Furthermore, the company continues to promote an online and offline omni-channel layout, and continues to deepen cooperation with e-commerce platforms such as JD, Tmall, Douyin, and Kuaishou while maintaining more than 5,000 offline channels in more than 30 provinces and cities. Considering how long it will take for consumer confidence to recover, we expect the consumer electronics business to remain under pressure in the first half of the year, and it is expected that steady growth will resume in the second half of the year as macroeconomic recovery continues.
The target price was lowered to HK$5.80 to maintain the “buy” rating
We lowered our earnings forecast. The net profit for 2023E/24E was +7.6%/+14.1% respectively to HK$885/1,010 million, and the EPS corresponding to 23E/24E was HK$0.63/0.71, respectively. Referring to the current valuation of major competitor Shenzhou Digital (000034 CH) and the company's historical valuation, the target price was valued at 9.5 times the 23-year target PE. The target price was lowered to HK$5.80 accordingly, with a potential increase of 27.1%, maintaining the “buy” rating.
Risk warning: (1) macroeconomic impact; (2) increased market competition; (3) cloud computing expansion falls short of expectations