[Event] Recently, the company released the performance report for the first half of 2017. During the reporting period, the company achieved operating income of 367 million yuan, a slight decrease of 3.8% over the previous year; Guimu's net profit was 18.1525 million yuan, a year-on-year decrease of 28.16%.
Optimize the business structure to help improve the company's profit level: The company mainly provides IT solutions and services to customers, mainly commercial banks, including IT infrastructure construction, software solutions, and IT operation and maintenance services. The main reason for the decline in H1's net profit in 2017 was the decline in IT infrastructure demand from traditional customers of large and medium-sized banks, which caused IT infrastructure business revenue to decline; at the same time, due to fierce competition and rising sales expenses, the gross margin of IT infrastructure construction business declined. However, the company increased its investment in software solutions and IT operation and maintenance business. The gross margin of both businesses increased significantly compared to 2016, increasing the company's overall gross margin of H1 in 2017 to 20.5%, up nearly 1 percentage point from the end of 2016. In the future, as the company's business structure is further optimized and upgraded, high-margin business will drive the company's profitability.
Increase investment in technology research and development to seize the development opportunities of banks in the “cloud era”: In 2016, the Banking Regulatory Commission put forward quantitative requirements for the application of big data technology, cloud technology applications, data centers, and the construction of intelligent operation and maintenance systems in the “13th Five-Year Plan for the Development of Information Technology in the Chinese Banking Industry (Draft for Comments)”. Going to “IOE”, host migration, localization, and application cloud architecturing have become a trend. The company invested in R&D to upgrade the company's core platform, StarRing, to support the common SOA technology framework; upgraded MOIA products to form an iMOIA software package to develop the BDPAS data platform to strengthen the company's big data business service capabilities; continuously improve IT operation and maintenance system capacity building; at the same time, reserving technology in the fields of artificial intelligence and blockchain has consolidated the foundation of the company's development, and will continue to benefit from the technological transformation and upgrading of banks in the “cloud era” in the future. During the reporting period, the company's fund-raising projects achieved benefits of 268.306 million yuan, making positive progress.
Investment advice: We forecast that from 2017 to 2019, the company's net profit will be 65 million yuan, 77 million yuan and 90 million yuan respectively; EPS will be 0.54 yuan, 0.64 yuan and 0.75 yuan respectively. The target price for 6 months is 29.7 yuan, giving the increase in holdings a -A rating.
Risk warning: 1. Risk of falling business demand from traditional bank customers; 2. New business promotion does not meet expectations; 3. Industry competition increases risk; 4. Technology research and development falls short of expectations;