Event: the company released its annual report for 2018 and quarterly report for 2019: operating income reached 3.558 billion yuan in 2018, a year-on-year growth rate of 9.36%; net profit attributed to the parent company was 177 million yuan, a year-on-year growth rate of-41.76%. In the first quarter of 2019, the operating income was 748 million yuan, an increase of 11.03 percent over the same period last year, and the net profit attributed to the parent company was 68 million yuan, an increase of 93.36 percent over the same period last year.
The development of various business sectors is stable, and the gross profit margin has increased significantly. In 2018, the company applied emerging technologies such as artificial intelligence, big data and cloud computing to promote the steady development of smart cloud services, smart cities, smart commerce and smart life. In addition to the smart business sector, other major business sectors have achieved rapid revenue growth. The gross profit margin of the smart city and smart business sectors, which account for the majority of revenue, has increased significantly, which has led to a certain increase in the overall gross profit margin of the company.
The performance of subsidiary Huatong Cloud data is lower than expected, and the impairment of goodwill affects the overall performance. Huatong Cloud data, a wholly owned subsidiary of the company, achieved a cumulative net profit deduction of 257 million yuan from 2017 to 2018, with a cumulative commitment profit completion rate of 72.2%. As the performance fell short of expectations, the company set aside 51 million yuan for goodwill impairment. This event has a great impact on the asset impairment loss and fair value profit and loss in the income statement, and has a great impact on the overall net profit of listed companies, especially the deduction of non-net profit.
The focus of the company's future lies in the landing of the "AI Driven" strategy in various business sectors. In 2019, the company will focus on building a distributed AI cloud platform, and combine the three key industries of transportation, finance and health to develop highly competitive products and promote the further upgrading of existing business.
Profit forecasts and investment advice. We adjusted the company's EPS from 2019 to 2021 to 0.24,0.32 and 0.36 yuan respectively, giving it a "prudent overweight" rating.
Risk tips: impairment risk of goodwill, substandard performance of major subsidiaries, payback risk, etc.