Incident: The company released its 2016 mid-year report. In the first half of 2016, the company achieved operating income of 809 million yuan, an increase of 18.06% over the previous year; net profit attributable to owners of the parent company was 35.2543 million yuan, an increase of 82.24% over the previous year.
During the reporting period, the company's main business operated well, and the development and industrialization of various new products progressed smoothly. Looking at single-quarter data, the company's quarterly revenue was 431 million yuan, an increase of 19.74% over the previous year; net profit attributable to owners of the parent company was 33.83887 million yuan, an increase of 149.53% over the previous year. During the reporting period, the development, industrialization and marketing of the company's new products progressed smoothly: 1) During the reporting period, the R&D and promotion of the company's financial IC cards, communication smart cards, SWP-SIM, tax control products and POS terminals progressed well. The company's dual-interface financial IC card product has obtained MasterCard's product certificate. The company's M2M and SWP-SIM cards and other communication smart card products have passed China Telecom's 2016 M2M product filing test. We are optimistic about the performance of these products in the next round of tenders. The company's SWP-SIM products have obtained the EMVCo (International Chip Card Standardization Organization) certificate. The company has completed its plan for mobile bonded products, and we are optimistic that it will continue to increase the company's performance. We believe that the company's various financial information products and solutions have leading technological advantages and mutual synergistic effects between product function modules. We are optimistic that the company's performance in the financial information field will continue to grow at a high potential; 2) During the reporting period, the company passed GP (GlobalPlatform, Global Platform Organization) certification based on TEE (Trusted Execution Environment) mobile terminal security. The company's related products have passed the certification tests of China's Tel-Laboratories and Tencent's respective tests on the MTK and Qualcomm chip platforms. The company completed the development of a series of solution products such as mobile payment and identity authentication, and a trusted service management platform (TSM). We are optimistic that the promotion of the company's mobile terminal payment product plan will bring new driving force to the company's profit growth; 3) During the reporting period, on the basis of building an education cloud platform interconnection system, the company built an open education cloud platform to attract developers to jointly build an education cloud ecosystem. The company has completed the system framework for each core product of smart education based on the Education Cloud. We believe that the company's product technology, brand channel, and system-level solutions address teachers' normalized core application needs. Mutual collaboration and mutual promotion among various modules will continue to enhance the company's profitability in the education cloud ecosystem business.
During the reporting period, the comprehensive profit margin remained at a high level, and the company's profitability was good. In the first half of 2016, the company's comprehensive gross margin was 29.95%, down 0.98 percentage points from the previous year; the company's consolidated gross margin for the second quarter was 30.67%, down 0.74 percentage points from the previous year and up 1.53 percentage points from the previous quarter. We believe that as the company continues to develop and marketize new products, the company's product structure will continue to be optimized, and we expect the company's comprehensive profit margin to continue to rise over the long term.
Expenses were well controlled during the company period, and R&D expenses were kept at a reasonable level. During the reporting period, the company's annual expense ratio was 21.97% (down 0.66 percentage points from the previous year), of which the cumulative sales expense ratio at the beginning of the year was 9.06% (down 0.48 percentage points from the previous year), and the cumulative management expenses rate at the beginning of the year was 12.3% (down 0.35 percentage points from the previous year). During the reporting period, the company's R&D expenses increased, up 20.27% year on year. We believe that the company's expenses have been kept on a reasonable scale, and expenses were well controlled during the period. We are optimistic about the potential for the company's R&D investment to continue to be converted into products and performance.
For the first time, we gave the company an “increase in holdings” investment rating. We expect the company's revenue for 2016/2017/2018 to be 1,778 million yuan, 2.16 billion yuan and 2,713 billion yuan respectively; net profit attributable to the parent company of the listed company was 64.7518 million yuan, 115 million yuan and 170 million yuan respectively; earnings per share were 0.15 yuan, 0.27 yuan and 0.39 yuan respectively; the corresponding dynamic PE was 101.2 times, 56.22 times and 38.92 times, respectively.
We are optimistic about the effects of the company's R&D and industrialization of various new products. For the first time, the company was given an investment rating of “increasing holdings”.
Risk warning: Downstream demand fluctuates more than expected.