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The company released a report for the first quarter of 2016, with operating income of 378 million yuan during the reporting period, an increase of 16.20% over the same period last year. Net profit belonging to the owner of the parent company was 7.536 million yuan, down 8.51% from the same period last year.
Comments:
The performance in the first quarter was basically in line with expectations. The company's operating income increased compared with the same period last year, while its net profit declined, mainly because the gross margin of the financial IC card business continued to decline, the new business performance did not reach the inflection point, and continued the 2015 trend, which was basically in line with the market expectations of the company's new and old business. Gross profit margin continued to decline in the first quarter, down 1.4 percentage points from 2015 to 29.14 per cent. The company actively laid out new business, continued to increase investment in R & D and market, and increased management costs by 25.46%. We continue to value the company's first-mover advantages and layout in the field of mobile terminal security and online education. The new layout industry has a broad market space and is expected to bring new performance growth points for the company.
TEE technology breaks the ice for the first time and preemptively enters the 10 billion mobile terminal security market. On April 11, the company's subsidiary Guokui Technology helped Coolpad ivvi i3 launch Coolpad's first Qualcomm Inc platform phone that supports Wechat fingerprint payment. The company is one of the earliest domestic manufacturers in the field of mobile payment terminal security, and currently has complete mobile phone security solutions such as TEE, eSE, TSM, HCE and so on. According to institutional forecasts, the global market for mobile security software and services is expected to grow from $1.508 billion in 2014 to $5.755 billion in 2019, a compound growth rate of 30.7%. The Asian market will grow by as much as 33.14%. With the outbreak of NFC payments, the company will actively promote TEE products, which is expected to expand the number of terminal brushes of security solutions and lay out security application services in the future.
The steady progress of education cloud construction is expected to become a new profit growth point for the company. Relying on the monopoly position of the education cloud platform, the company has a strong say in the industry. Since the national education cloud platform exclusively undertaken by the company was put into operation in 2012, the company has occupied more than ten national platforms and is one of the leaders in terms of market share. The company continues to increase investment in research and development, and has launched the core products of education cloud platform, such as intelligent classroom, teaching assistant and education cloud learning plan. The education cloud platform carries teacher-side teaching data, followed by student-side learning needs, data advantages for companies to optimize industry solutions, and provide conditions for the development of value-added services, there is a broad potential market space.
Risk factors. The risk of falling gross margins as a result of increased competition; the risk that new business expansion is not as expected.
Profit forecast, valuation and investment rating. Due to the cancellation of the company's refinancing and the significant decline in traditional main business demand and gross profit, we downgraded the company's 2016-17 EPS forecast to 0.11 won 0.21 yuan (the original forecast 0.34 won 0.44 yuan) and downgraded to "overweight" rating. However, we are still optimistic about its long-term development: the market share of the company's TEE business is clear, the layout of education cloud business in many provinces and cities has entered the landing stage, and the support point of follow-up development can be seen. Adopt the segment valuation method: for the traditional main business combined with the overall natural growth rate of the industry, give a valuation of 15 times in 16 years; for the education business, considering the company's layout in more than 10 provinces and cities, the 13th five-year Plan is expected to impact the 10 billion-level service market. We temporarily give the business a long-term target valuation of about 4 billion. On the mobile security side, the company is the absolute technology leader in China, with a single year mobile phone shipment coverage capacity of nearly 150 million units. As the B-end business model is not yet clear, but the necessity of TEE as an installation and the uniqueness of the application, we give a single mobile phone an application channel value of 5 yuan, which is close to 2.25 billion yuan in about three years; the total market capitalization of the company is close to 7 billion yuan, corresponding to the target price of 15.85 yuan.