Events:

The company disclosed its 18-and-a-half-year annual report on August 25, 18. In the first half of 18 years, the company achieved a net profit of 92.8 million yuan, a decrease of 44.97% over the same period last year, mainly due to the higher income from the disposal of equity in the previous period; the net profit was 90.14 million yuan, an increase of 734.79% over the same period last year. The company reported basic earnings per share of 0.09 yuan.

Comments:

Revenue is growing steadily and is expected to maintain this momentum throughout the year. In the first half of 18 years, the company achieved revenue of 1.517 billion yuan, an increase of 19.94% over the same period last year, mainly due to the combination of smart cloud service business. From a business point of view: revenue from smart commerce business is 594 million yuan, down 24.85% from the same period last year; revenue from smart city business is 441 million yuan, up 22.32% from the same period last year; revenue from smart living business is 111 million yuan, up 20.07% from the same period last year; revenue from smart cloud service is 341 million yuan, which is a new consolidated business in the second half of 17 years. Considering that the revenue of the company's original main business has increased and decreased, and the overall stability, while the revenue of the smart cloud service business in the first half of 18 years has exceeded the consolidated income of this business in the 17 annual report, the company's overall revenue for the whole year is expected to maintain a steady growth momentum.

Gross profit margin has increased significantly and is expected to rise steadily in the future. In the first half of 18 years, the company's gross profit margin reached 29.16%, an increase of 5.89% over the same period last year, mainly due to the increase in gross profit margin of smart business, smart city business and smart cloud service business. From a business perspective: the gross profit margin of smart commerce business is 21.25%, up 1.93% from the same period last year; the gross profit margin of smart city business is 17.97%, up 1.11% from the same period last year; the gross profit margin of smart living business is 67.72%, down 3.26% from the same period last year; and the gross profit margin of smart cloud service business is 40.56%, which was not reported in the middle of 17 years. Considering the increase in gross profit margin of smart business and smart city business, which account for the largest share of revenue, the company's overall gross profit margin is expected to rise steadily in the future.

The rate of the three items of expenses has declined steadily and is expected to stabilize. In the first half of 18 years, the company's three expense rates totaled 19.55%, down 2.62% from the same period last year, of which the sales expense rate was 5.06%, 0.04% lower than the same period last year; the management expense rate was 13.33%, 3.05% lower than the same period last year; and the financial expense rate was 1.16%, an increase of 0.47% over the same period last year. Considering that the company, as an IT enterprise, still needs to invest more R & D funds to improve its technical level, in order to maintain and improve its competitiveness in the industry, there is little room for further savings in management costs, and it is expected that the rate of the three expenses will stabilize in the future.

We will further strengthen investment in technological research and development and the construction of intellectual property rights. In the first half of 18 years, the company's R & D expenditure was 81.43 million yuan, an increase of 11.85% over the same period last year. In the first half of the year, the company added the third-level qualification of general contracting for communications projects and successfully passed the re-evaluation of ITSS qualification for three years, and obtained eight new patents. The company has completed the development of version 1.0 of Zhejiang University's new intelligent face recognition platform (bus station version), and face recognition has been extended to cars; considering that there are a large number of long-distance bus stations in China, and the implementation of the real-name system is later than that of railway stations, it is expected that there will be a large undeveloped market space in this field in the future, and the company is expected to make incremental income by virtue of the platform. The company developed AI combined with industry applications: the company's Huixin intelligent customer service system was launched in the first half of the year; the hotel online evaluation automatic classification system project based on semantic analysis was successfully completed and delivered; in addition, the company continues to promote the development of distributed AI, based on distributed AI architecture, combined with traffic, public security, urban management, media and other industry resource development industry application scenarios, has carried out small-scale pilot work in the company. The company is expected to have a bright future in the field of AI.

Chengdu Netxin has completed its industrial and commercial registration. In the first half of 18 years, the company and Chengdu Steel Vanadium Co., Ltd. of Panzhihua Iron and Steel Group and the Management Committee of Qingbaijiang Industrial Zone of Chengdu reached an agreement on matters related to project construction and signed the Project Investment Agreement. The overall plan of the project is to build 7 data computer rooms, 3 auxiliary buildings and 1 warehouse; the total construction area is about 138392 square meters; the project is invested in stages according to the final planning, with a total investment of about 1.5 billion yuan, covering an area of about 150mu; the first phase investment is about 200 million yuan, covering an area of about 30 mu. The land use right of the project is owned by Chengdu Company of Panzhihua Iron and Steel Co., Ltd. Chengdu net is operated by factory leasing. Chengdu Netxin and Chengdu Company of Panzhihua Iron and Steel Co., Ltd. signed a separate lease agreement. As of the date of disclosure of the China News, Chengdu Netxin has completed industrial and commercial registration, and the company has completed the initial contribution of 13 million yuan. The Chengdu project is expected to generate revenue in 19 years.

Profit forecast and investment advice: the company deducts a substantial increase in non-net profit, so the development of the main business is promising, but due to fluctuations in the secondary market, we have appropriately lowered our forecast for investment income. It is predicted that the EPS of the company after full dilution in 2018-19 is 0.35 yuan and 0.43 yuan respectively, and the corresponding PE is 27.3 times and 22.2 times respectively according to the closing price of 9.54 yuan on August 27th. Considering that the company's valuation is relatively low compared to the computer application industry, the company maintains a "buy" investment rating.

Risk hint: after the delay of project acceptance, Huatong Cloud's performance continued to be lower than expected for 18 years, resulting in systemic risk.