Main points of investment
Summary of the announcement: the company released its 2017 results KuaiBao, the company achieved operating income of 5.358 billion yuan, an increase of 20.50% over the same period last year, and the net profit belonging to shareholders of listed companies was 826 million yuan, down 33.92% from the same period last year. 2017Q4 achieved revenue of 1.561 billion yuan, an increase of 15.18% over the third quarter, and a net profit of 254 million yuan for shareholders of listed companies, an increase of 62.40% over the third quarter.
Revenue gross margin continued to improve in the fourth quarter, maintaining a leading position in the third-party CDN market. For the whole year, the company's performance is close to the upper limit of the performance forecast (7.5-850 million). Affected by the decline in the market price of high-traffic services such as streaming media distribution, the company's gross profit margin and net profit fell compared with the same period last year. From a single quarter, the performance inflection point has been shown, two consecutive quarters at the same time to achieve revenue and gross profit margin month-on-month increase. In the face of fierce competition in the domestic CDN market, the company actively adjusts its market strategy, extends its product chain, optimizes its product structure, promotes the development of value-added services, and maintains its leading position in the third-party CDN market. In addition, due to the company's strengthening of overseas CDN, managed cloud and other projects, continued to increase R & D investment, as well as South Korea CDNetworks consolidated statements, resulting in year-on-year growth of management expenses and sales expenses. After deducting the impact of one-time fees and losses of overseas companies, the real growth quality of the main business is better.
Price competition slows down and Internet traffic continues to grow to promote the development of the CND market. The price of 2017Q3murQ4CDN tends to be stable, close to the cost price, and the space for further decline is limited. Industry short-term rapid reshuffle, under the new market pattern, cloud computing manufacturers simply price competition is difficult to obtain more market share, small and medium-sized cloud CDN manufacturers are facing difficulties in refinancing, as the financing is exhausted, it is expected to withdraw from the competition. Internet traffic continues to grow at a high rate, Internet applications push through the old and bring forth the new, and new popular applications such as Battle Royale Games and live broadcast questions cause high demand for traffic. In the future, 5G, Internet of things, cloud computing and artificial intelligence will all bring sustained traffic growth. We estimate that China's CDN market is only 15% of the global market. China's current per capita traffic consumption level is much lower than that of the United States. The domestic CDN market still has great potential. We expect the CDN industry to maintain a compound growth rate of about 30% in the next three years.
Accelerate the layout of overseas CDN market and cloud business, and have great potential for cooperation with cloud computing manufacturers. In addition to building its own overseas nodes and developing overseas markets, the company accelerated the expansion of the overseas CDN market and actively deployed private cloud and edge computing through the capital acquisition of 97.82% of CDNetworks (South Korean company, the world's third largest CDN independent CDN company) and 70% of CDN-video LLC (Russian native CDN company) in 2017. Begin to integrate IDC business, will become a new profit growth point. Behind the company's revenue of more than 5 billion are many high-quality Internet and enterprise customers. The demand for IDC, cloud computing and other value-added services other than CDN is a potential big market, and the relationship between competition and cooperation with cloud manufacturers is the basis of business cooperation.
Investment advice: CDN market competition slows down price stability, net technology to maintain a leading position, gross profit margin from 2017Q3 to maintain a month-on-month increase. The company has many high-quality Internet customers and has great potential for cooperation with cloud manufacturers. At the same time, the company launched the integration of IDC business, with CDN and cloud business coordination, is expected to become a new performance growth point. We expect the company's net profit from 2018 to 2019 to be 1.083 billion yuan and 1.405 billion yuan, corresponding to EPS 0.45 yuan and 0.58 yuan respectively. The 2018 PE valuation is 25.66X, giving a "buy" investment rating.
Risk hint: the risk of intensified competition in the CDN market; the risk that overseas business development is not as expected.