I. Overview of events
Recently, the company issued a forecast of Q3 performance in 2017: the net profit of returning home in the first three quarters was about 188 million yuan, an increase of about 650% over the same period last year.
II. Analysis and judgment
The consolidated statement of investment income and GD leads to performance growth
1. Zhejiang Lande Zongheng Network Technology Co., Ltd., the new third board listed company invested by the company, completed the additional offering during the reporting period, resulting in an investment income of about 109 million yuan.
2. The company completed the acquisition of GD in the United States in April 2017, and the inclusion of GD in the scope of the merger led to a continuous increase in the profits of the company's main business.
After deducting the return on investment in Rand (109 million), the company's net profit in the first three quarters was about 79 million yuan, an increase of 213% over the same period last year.
Organize the Internet of things to participate in the growth of high-quality companies
The company successfully entered the field of the Internet of things through the fund holding Tailing, which helps the company to seize the IoT market opportunity. The company participates in the M & A fund with its own capital not exceeding RMB 590 million. The fund acquired an 82.7471% stake in Tailing Microelectronics for 1.86 billion. Tai Ling has more than 70 patents and the core patent of BLE mash. Its multimode chip supports almost mainstream protocols. Its products have a strong cost advantage, achieving a highly integrated, high-performance and low-cost solution (from: Tailing Microelectronics official website).
The income of core products has increased greatly.
The company's mastery of the core technology is improving, the medium-and long-term market performance of the products is expected to be further improved, and future performance is expected. In the recent year, Huasheng cloud solutions (especially hybrid heterogeneous clouds) have been recognized by the market, and there has been a great breakthrough in the revenue of servers, middleware and other products. Hundreds of enterprises have adopted Huasheng Tiancheng's minicomputers, databases and other products.
Major shareholders increase their holdings to show confidence
Major shareholders are expected to increase their holdings by about 3% of the total market capitalization, which will be implemented in the next 12 months from May 25, 2017, with funds from major shareholders' own funds and self-raised funds. On the one hand, increasing holdings helps to enhance the control ability of major shareholders over the company, on the other hand, it is also a long-term optimistic performance of the company's development, showing confidence in the future development of the company.
The successful acquisition of GD deepens the international layout
The acquisition of GD not only thickens the company's performance, but also gains huge strategic advantages in technology sharing and market sharing. The company completed the settlement of the Grid Dynamics (GD) merger in April this year and spent $118 million to acquire a 100% controlling stake. GD is a U.S.-based IT services company specializing in providing innovative, critical cloud solutions for retail, financial and technology companies, currently serving the largest department store retailer and top IT company in the United States (from GD's website). GD is a high-growth, high-margin and high-quality target, with 2015 revenue of US $39.73 million, an increase of 30.9%, and profit before interest and tax of US $8.82 million, an increase of 33.5%. GD promises to complete $15 million within 12 months of delivery and $20 million in earnings before interest and tax within 12-24 months (from: company announcement).
Third, profit forecast and investment suggestions
We estimate that the operating income of the company from 2017 to 2019 is 6.37 billion, 8.25 billion and 10.07 billion respectively, and the net profit is 223 million, 282 million and 331 million respectively, and the corresponding EPS is 0.2,0.26,0.3 yuan respectively. According to the company's current share price, the PE is 44.6X, 35.8X and 30.5X, respectively. We believe that the reasonable valuation range of the company in 2017 is 55-60 times, corresponding to a reasonable valuation of 11-12 yuan, continue to give a "highly recommended" rating.
Fourth, risk tips:
1) the acquisition company is not up to expectations; 2) the customer concentration of the acquisition company is high; 3) significant technical risks; 4) the growth sector is not up to expectations.
