Incident: The company released its 19H1 financial report on August 15, with revenue of 293 million yuan, an increase of 21.58% over the previous year, and the net profit of the mother was 7.6 million. The gross profit of the company's main business did not change much year over year. Costs increased slightly. R&D investment increased 24.46% year on year, accounting for 27.96% of revenue.
Comment: The company's revenue is highly seasonal, and losses in the first half of the year did not change the certainty of full-year performance. The company's main customers are the three major telecom operators. Due to its habits of budgeting, approval, and procurement bidding and review cycles for information technology construction, contract signing and payment are generally at the end of the year, so the company's revenue will be reflected relatively in the fourth quarter. The company's revenue for the fourth quarter of 2018 and 2017 accounted for 50.9% and 52.9% of annual revenue respectively. Net profit also showed losses in the first half of the year, and profit at the end of the year. The company's revenue growth rate in the first half of 2019 was significantly higher than the same period last year. The gross margin and expense ratio remained stable, so it can be judged that the company's annual profit growth is more certain.
Traditional fields continue to exert their advantages and consolidate their central position in the market. Telecom operators remained the main contributor to the company's revenue and profits during the reporting period. In the first half of 2019, as the main supplier and partner of various operators, the company also carried out “internetwork mobile user number carrying”, one of the operator's key tasks this year, in several provinces, and continued to successfully advance key projects that were not completed last year. Furthermore, the company's products have been provided from telecom operators' business support system products, gradually extended to the network management domain, further deepened cooperation with operators, and gradually established a central position in the market.
The commercial license is officially launched, opening up the 5G trillion market, and the company will fully benefit. As a core supporter of the telecom industry, Stetky closely followed the global 5G development trend and added 5G services. On June 6, 2019, the Ministry of Industry and Information Technology officially issued a 5G commercial license. The three major operators took the lead in early deployment and actively promoted the 5G commercialization process. In terms of the new 5G market, the company's technical plan integrates 5G core technologies such as cloud network integration, SDN/NFV, edge computing, and 5G network slicing and arrangement to initially form an overall 5G solution, and has begun developing relevant product platforms to serve all participants in the overall 5G industry chain. With the implementation of the 5G commercial process, the company is expected to fully enjoy the incremental market brought by 5G.
AI-PaaS products were first completed, and important progress has been made in the field of artificial intelligence. In 2018, the company analyzed the field of artificial intelligence AI from an overall strategic level. By the first half of 2019, it had initially formed AI PaaS platform products such as an intelligent algorithm open operation service platform, an intelligent interaction platform, a feature recognition center, and an open AI computing power platform. As future products are gradually deployed and launched, it is expected to become a new growth point for the company.
Company profit forecast and investment rating: As a core supporter of the telecom industry, the company is expected to fully benefit from the development of the 5G market. We expect the company's net profit to be $1.06/132/165 million in 2019-2021, and the corresponding EPS will be $0.67/0.84/1.05, respectively. The current stock price corresponds to the 2019-2021 PE value of 24/19/15 times, respectively. Give a “Recommended” rating.
Risk warning: The 5G commercial process fell short of expectations, and the company's strategic cooperation fell short of expectations.
