Key points of investment:
Silk Road Vision: A share comprehensive CG visual service scarce target. The company is the first A-share listed CG visual service company, and its business covers the entire industry chain related to CG visual services. The business began with architectural design renderings, then spawned full-industry chain services including downstream real estate development, mechanical and electronic product production and promotional animation CG, comprehensive planning of downstream exhibition halls and evening stages, CG art outsourcing services for film and television games, and video game CG art outsourcing services, and upstream CG technical training and education.
The main business industry lacks leading ceilings and is still at a high level, and the “individual high-value” large-scale exhibition hall CG comprehensive service construction performance is flexible. (1) The company's main business is CG visual services related to architectural design and real estate development, and is downstream of real estate development. Currently, the industry is maturing, but it still lacks leaders. As the company with the highest market share, Silk Road Vision still has a market share of less than 10%. We predict that the company will take advantage of being the first to go public and that its future outreach capabilities will be stronger than its competitors. As it actively explores the East China and North China markets, the growth rate of the main business can be expected. (2) The individual cost of comprehensive CG services for the exhibition hall is high. Four of the company's top 5 customers came from this service in 2015, with a maximum amount of 45.9 million. The gross profit margin of the business in 2016 was 37.88%, while the company's net profit for the full year of 2016 was only 27 million. Undertaking more large-scale projects in the future will constitute flexibility in performance.
“Cloud Rendering” opens the self-service rendering market, and the film and television game market has great potential for development. Ruiyun Technology, a subsidiary of the company, developed the Renderbus self-service cloud rendering platform, which provides users with convenient and fast cloud rendering services based on cloud computing. Ruiyun Technology obtained 20% of Alibaba Group's shares in June 2016 and reached a partnership with Alibaba Cloud to open up downstream sales channels. The company actively lays out gaming, film and television businesses, and provides rendering technology services to large companies such as Ubisoft. As demand in the entertainment market changes, the order scale is expected to increase dramatically, driving performance improvement.
The layout of CG education and training forms a closed loop in the industry. In addition to improving the layout of the downstream CG industry, the company has accelerated the layout of the upstream CG talent education and training industry. Relying on the era of the Beijing Deep Silk Road and Nanjing Deep Silk Road subsidiaries, training institutes have been set up in Nanjing, Wuhan, and Shenzhen. Currently, there are more than 2,300 students. About 30% of these students can directly enter the Silk Road Group after passing the assessment, gradually forming a closed loop in the industry.
Investment advice. We expect the company's revenue for 2017/2018/2019 to increase by 11.4%, 14.4% and 17.9%, respectively, with net profit of 0.32, 0.34, and 42 million yuan respectively, and corresponding EPS of 0.29, 0.30, and 0.37 yuan. The risk of the company's bad debts is expected to be at a manageable level, and the broad market and business expansion will bring about steady growth. We anticipate that the increase in gross margin will effectively drive the increase in operating profit. Due to the scarcity of A-shares and the company's industry being on a rapid development path, we gave the company a certain valuation premium 90 times the 2017 valuation, with a target price of 26.1 yuan.
Risk warning: The growth rate of major projects falls short of expectations, and the real estate industry is sluggish
