Events:
According to the annual report released by the company in 2016, the operating income for the whole year reached 1.3 billion yuan, an increase of 2.24 percent over the same period last year. The net profit belonging to shareholders of listed companies was 74.64 million yuan, down 31.2 percent from the same period last year. The performance is basically the same as the previous performance KuaiBao, in line with expectations. At the same time, it was announced that in the first quarterly report of 2017, the operating income was 280 million yuan, an increase of 55.19% over the same period last year; the net profit belonging to shareholders of listed companies was 3.87 million yuan, down 25.74% from the same period last year.
The fierce competition in the network excellent market leads to the decline of the performance of the main business.
In 2016, the commercial use of the operator's 4G network accelerated and the company's main business expanded, but the intensification of market competition led to a decline in gross profit margin, with the annual comprehensive gross profit margin falling by 2.85 percentage points. In addition, the new office building increases the current cost and plans for restructuring to pay intermediary fees, resulting in a decline in net profit. We believe that the improvement of the market concentration of the network excellent industry in the future will continue to bring the company's main business revenue growth, but the competition is fierce and the long-term profit will tend to be stable. The company's revenue increased significantly in the first quarter of 17 years, mainly due to the consolidation of connected harbors, but its performance still declined due to increased costs and expenses.
Connected Harbor has exceeded its performance commitment and is optimistic about the market potential of its hybrid cloud business.
Connected Harbor promised net profit of 40.5 million yuan, 69 million yuan and 93 million yuan for 16-18 years, and a net profit of 42.33 million yuan in 2016, slightly exceeding the performance promise. Internet Harbor focuses on hybrid cloud and industry segment cloud computing market. Currently, it has achieved full docking between SDN network and Aliyun. The SDN platform has directly opened the data center to Aliyun virtual private line, and the integration of AWS is also under way. We believe that its technology deployment is in line with the development direction of cloud computing and is optimistic about its growth potential.
Planning to acquire the remaining equity, the founder of connected Harbor is expected to actively participate in the management of the company.
The company is currently suspending trading plans to issue shares and pay cash to acquire the remaining 49% stake in Internet Harbor, with a transaction amount ranging from 550 million to 700 million yuan. If the acquisition is successful, the ownership structure of the company will change, and Ren Zhiyuan, founder of Internet Harbor, is expected to actively participate in the company's management as a major shareholder, which will bring new imagination space for the promotion and transformation of the company's strategy.
Maintain the "overweight" rating, with a target price of 14 yuan
We do not consider the impact of the acquisition of the remaining equity in Internet Harbor for the time being. It is estimated that the company's EPS from 2017 to 2018 will be RMB 0.29,0.32, respectively, and the corresponding PE will be 36X/32X, respectively. We are optimistic about the cloud service layout of the company's IDC+DCI+SDN+ hybrid cloud and maintain the "overweight" rating with a target price of 14 yuan.
Risk hint: the risk that the underlying company's profits fall short of expectations, and the risk that new business development falls short of expectations.