Event: the company released its annual report for 2018, with annual revenue of 707 million yuan, an increase of 25.28% over the same period last year; net profit of 45 million yuan, an increase of 34.92% over the same period last year; and net profit of 21 million yuan after deducting non-recurring profits and losses, an increase of-20.58% over the same period last year. The company pays a cash dividend of 0.30 yuan (including tax) for every 10 shares to all shareholders and increases 7 shares for every 10 shares to all shareholders.
The comprehensive gross profit margin of Wisdom Food Security and Wisdom Archives business has decreased: during the reporting period, the revenue of the company's four main businesses, Wisdom Food Safety, Wisdom Archives, Wisdom Justice and other businesses, were 175 million yuan, 287 million yuan, 135 million yuan and 110 million yuan respectively, up 21.35%, 61.03%, 3.99% and-1.94% from the same period last year. Among them, Smart Food Safety Business built nine provincial important product traceability platforms in 2018, including Shanghai, Anhui, Hunan, Hubei, Guangxi, Guangdong, Yunnan, Chongqing, Shaanxi, etc., and expanded the traceability system construction projects in Tianjin and Beijing meat and vegetable circulation pilot cities to achieve broad enterprise coverage in the field of food supply chain quality management and traceability. On the other hand, during the reporting period, the wisdom archives business undertook a total of 38 archives bureau (museum) customers at or above the vice provincial level, with a market coverage rate of 76%. The customer coverage rate of the archives bureau (museum) in Shanghai is 100%, and the market advantage is obvious. In 2018, the company's overall gross profit margin fell by 4%, and all business gross profit margins declined, which we believe is mainly related to the accelerated market expansion of the company.
The increase in government subsidies has led to a significant increase in non-profit and loss, and the sharp increase in advance collection reflects the strong potential for income growth: during the reporting period, the company's sales expenses and management expenses increased by 10.10% and 8.81%, respectively. In 2018, the company received a government subsidy of 27.6015 million yuan, a significant increase compared with the past. In addition, the company had a larger amount of share payment fees in 2016 and 2017, which was 0 in 2018. The combination of the two led to a significant increase in the company's non-recurrent profit and loss in 2018. On the other hand, the company received a total of 139 million yuan in advance at the end of 2018, an increase of 75.95% compared with 2017. On the one hand, it shows that there is a significant increase in the company's orders-on-hand compared with the previous year, and the future revenue growth is more sufficient.
As the government strengthens food safety regulation, the traceability cloud market is expected to continue to open:
A series of incidents infringing upon the rights and interests of consumers were revealed at the CCTV 3.15 party in 2019, among which the problems of fish mixing beads and misuse of additives in foods such as spicy gluten and native eggs are even more shocking. The issue of food safety governance can not be ignored. On March 26, 2019, Premier Li Keqiang presided over an executive meeting of the State Council, which adopted the regulations of the people's Republic of China on the implementation of Food Safety Law (draft). The draft details the main responsibility of producers and operators, government supervision responsibilities and accountability measures, and increases the penalties for illegal enterprises and their legal representatives and other relevant responsible persons in accordance with the law. Company traceability Cloud takes the third-party food safety service platform as its positioning, adopts cloud service model and provides professional SaaS application services and big data analysis services to provide integrated information traceability and certification services for the food supply chain. With the strengthening of national management of food safety, the company's traceability cloud business space is expected to continue to expand.
Investment suggestion: the company has outstanding card position advantages, a comprehensive layout of food traceability process, carrying the "sharp arrow" of traceability cloud, taking advantage of the "two wings" of the archival industry and the judicial industry, and future performance growth is expected. It is estimated that the EPS in 2019 and 2020 will be 0.46 yuan and 0.59 yuan, maintaining the buy-A rating, with a 6-month target price of 35 yuan.
Risk tips: traceability cloud development is not up to expectations; market competition risk.