Event: recently, Runhe Software released its annual report in 2018, showing that the company achieved a business income of 2.038 billion yuan in 2018, an increase of 26.41% over the same period last year, and a net profit of 314 million yuan for shareholders belonging to the parent company, an increase of 26.05% over the same period last year. The net profit of shareholders belonging to the parent company reached 292 million yuan after deduction, an increase of 29.53% over the same period last year.
Comments:
All kinds of business are growing rapidly, and the cash flow has increased significantly. The company achieved steady growth in 2018, with good performance in all major business areas. The revenue growth rates of the three business sectors of financial technology, intelligent terminal informatization and smart energy informatization are 25.39%, 45.10% and 27.36% respectively. In 2018, the company's gross profit margin decreased by 2.69 percentage points, and the rapid growth of intelligent terminal information business with relatively low gross profit margin pulled down the overall gross profit margin to some extent. In 2018, the company's net interest rate fell slightly by 0.32 percentage points, and the expense rate remained basically stable. In 2018, the net cash flow of the company's operating activities was 275 million yuan, an increase of 90.31% over the same period last year, accounting for 87.5% of the mother's net profit.
The investment in R & D is growing rapidly, and we are working with Ant Financial Services Group to create new products. In 2018, the company's R & D investment and the number of R & D personnel continued to grow rapidly. The total investment in R & D reached 301 million yuan, an increase of 55% over the same period last year; by the end of 2018, the number of R & D personnel was 1389, an increase of 43% over the same period last year. Both are growing much faster than revenue. At the level of R & D products, the company and Ant Financial Services Group jointly developed a "new generation of distributed financial core system" to help traditional banks create an overall structure and operation model of "large and medium-sized platform and fast front desk". In March 2019, the product was officially released, which contributes to the improvement of the company's technical capability and brand effect.
Lianchuang Zhirong fulfilled its performance commitment, and the terminal informationization moved forward to the intelligent Internet of things. The company's financial technology business is mainly undertaken by two wholly-owned subsidiaries, Lianchuang Zhirong and Jie Zhicheng. In 2018, the two realized operating income of 6.39 yuan and 558 million yuan respectively, and net profit of 226 million yuan and 77.484 million yuan, respectively, with a year-on-year growth rate of 23.7% and 2.6%, respectively. Among them, Lianchuang Zirong successfully completed its performance commitment in the last year, and Jike Zhicheng also maintained steady growth in its performance. In the future, the cooperation between the company and strategic partner Ant Financial Services Group in technical resources, customer resources and team resources is expected to inject new development momentum into the company. In the aspect of intelligent terminal information business, the company has initially possessed the integrated intelligent Internet of things scheme and integrated service capability from chip to application. The company launched a new generation of AI computing platform HiHope, and released seven high-performance AI computing platforms, such as HiKey960 and HiKey970, to provide support for the digital strategy upgrade to the intelligent Internet of things.
Earnings forecast and rating: we expect the company's operating income in 2019-2021 to be 25.36,30.98 and 3.69 billion yuan respectively, the net profit attributable to the parent company is 4.12,5.05 and 595 million yuan respectively, and the diluted earnings per share based on the latest share capital 796 million shares are 0.52,0.63 and 0.75 yuan respectively, and the latest share price corresponds to 26,21,18 times of PE respectively, maintaining the "overweight" rating.
Risk factors: new product and new technology development risk; management risk caused by the expansion of the company size; accounts receivable recovery risk; goodwill impairment risk.