I. Overview of events
The company released its annual report for 2016, with an operating income of 889 million yuan, a decrease of 2.43% over the same period last year, and a net profit of 119 million yuan, down 34.86% from a year earlier. The company intends to distribute a cash dividend of 1 yuan (including tax) / 10 shares to all shareholders on the basis of 418 million shares of total share capital.
II. Analysis and judgment
Declining revenue and rising costs drag on the company's performance
In 2016, the domestic demand for major products decreased and the market competition intensified, so the unit price of products continued to decline. Management fees increased, up 12.99% from the same period last year, while financial income and software tax rebates decreased, making the company's operating income down 2.43% from the same period last year. The operating income of the foreign market increased by 20.65% compared with the same period last year, and the active expansion of the foreign market eased the decline of the company's performance.
Continue to increase investment in research and development and constantly adjust the product structure
The company's R & D investment was 111 million yuan, accounting for 12.50% of operating income, up 1.39% from the same period last year. During the reporting period, 109 domestic patents were obtained, making it the enterprise with the largest number of patent applications and authorizations in the same industry. In the traditional business, smart card, block chain and biometric technology and other areas of continuous research and innovation, products also continue to hit the ground. The company continues to adjust its product structure according to market demand. The output of USB-Key, IC cards and reader series decreased by 12.29% and 65.68% year-on-year, while the production of encrypted locks increased by 58.99%. We believe that with the continuous increase of the company's R & D investment and the continuous adjustment of product structure, the future performance is expected to improve.
The competition for traditional products is fierce, and there is still room for overseas markets.
The traditional online banking products-U Shield and OTP have been popular in domestic banks, the competition is fierce, and the growth space in the future is limited. With the development of mobile payment and the emergence of cash withdrawal without a card, the number of bank cards shows a downward trend, and it will be difficult to increase the space of traditional products in the domestic market. However, the iteration of renewal in foreign markets is slow, and the prices of existing products are higher, so there is still room for overseas markets. At present, the company's active smart cards have been shipped to overseas markets, mainly customers from Europe and Taiwan and other regions. On the premise of maintaining the domestic market share, the company will continue to enter the overseas market by virtue of technological advantage and price advantage.
Acquisition of upstream enterprises, coordinated development of technology, products and market
On January 14, 2017, the announcement completed the acquisition of a 91.36% stake in Hongsi Electronics, and Hongsi Electronics officially became a holding subsidiary of the company. Hongsi Electronics belongs to the upstream enterprise and has complete independent intellectual property rights and technological leadership in random number chips, dedicated high-performance cryptographic algorithm chips and commercial information security SOC chips. After the completion of the acquisition, the company will fully combine its capabilities and technical advantages in the development of COS operating systems and related applications with the chip design capabilities of the target company, and promote product innovation and business development through technology iterations. We believe that the deep integration of the advantages of both sides will help to expand the market in the areas of network security, financial payment, intelligent transportation, secure smart home and Internet of things security in the future.
Layout "block chain" to seize the strategic highland
As the basic technology of Bitcoin, blockchain has the characteristics of distributed, decentralized, de-trusted, untampered and encrypted security. In recent years, with the rapid development of blockchain technology, various industry exhibitions have opened a wide range of applications, and the demand for key protection of digital currency has also emerged. On August 25, the company reached a strategic collaboration with Bubby Network Technology Co., Ltd., which focuses on blockchain technology innovation, and the two sides will carry out extensive cooperation on "core technologies and products", "identity authentication and private key protection" in the blockchain field. On September 23rd, the company released the industry's first digital currency fingerprint hardware wallet CoinPass Bio based on blockchain technology, which provides basic key security services for digital currency applications. We believe that with the approach of the digital currency issue of the central bank and the rapid development of blockchain technology based on industry application, the company will enjoy the dividend of this emerging market by virtue of its first-mover advantage in the blockchain field.
Focus on smart card business and seize industry card opportunities
The company's technical advantages in the field of COS (embedded operating system) will be reflected in the smart card business. In 2015, he cooperated with Walt Disney Company to become the only cardholder in China who can use Walt Disney Company's classic cartoon image, laying out the field of public transport smart cards. The world's first "realizable balance bus IC card based on visual card technology" was unveiled at the Infosecurity Europe exhibition. At the same time, it launched an active smart card used in the banking industry, which integrates battery technology, output and input technology, display technology and other technologies. More than 200000 cards have been issued since the card was shipped in August. The company has set a market share target of 30% Mui 45%, which corresponds to a huge market space. In addition, industry card projects such as social security cards and resident health cards are also being carried out in an orderly manner.
Third, profit forecast and investment suggestions
It is estimated that the EPS of the company in 17-19 is 0.44,0.56 and 0.77 yuan respectively. The market scale of smart card industry is huge, the company's product structure will be optimized and adjusted, and the future performance is expected to improve. Because of the natural advantages and advance layout in the field of block chain, the company has a certain card position advantage. We give a range of 60-70 times PE in 2017, corresponding to the valuation range of 26.4-30.8 yuan over the next 12 months, covering the "highly recommended" rating for the first time.
IV. Risk hints
1) the landing of product research and development is not as expected; 2) policy risk; 3) business promotion is not as expected.