Event

On October 27, Runhe Software released its three quarterly reports for 2019. In the third quarter, the company realized operating income of 581 million yuan, an increase of 10.36% over the same period last year, a net profit of 59 million yuan, a decrease of 27.51% over the same period last year, and a net profit of 54 million yuan, down 32.07% from the same period last year.

Comment

The company's operating income increases steadily, and the loss of asset impairment leads to profit fluctuation.

In the first three quarters, the company achieved operating income of 1.647 billion yuan, an increase of 17.35% over the same period last year; net profit of 168 million yuan, down 6.18% from the same period last year; and non-return net profit of 153 million yuan, down 11.3% from the same period last year.

In the first three quarters, the company suffered losses from the disposal of fixed assets, while the company generated income from the disposal of fixed assets in the same period last year, so the income from asset disposal decreased by 126.05% compared with the same period last year, resulting in profit fluctuations.

The digital upgrade strategy is promoted in an all-round way, and high investment suppresses the company's profits.

In the process of comprehensively promoting the digital upgrade strategy, the company continues to increase R & D investment, while the company's labor costs continue to rise. At present, manpower costs account for a high proportion of the company's total operating costs, including about 9000 technical personnel. Employee compensation has high competitiveness and attractiveness in the whole industry. During the reporting period, the company's sales, administrative and financial expenses increased by 11.31%, 26.77% and 2.03% compared with the same period last year.

There are plenty of orders on hand, and the company is optimistic about its performance growth in the fourth quarter.

During the reporting period, the company's accounts receivable totaled 1.721 billion yuan, an increase of 42.31% over the beginning of the year, while the amount received in advance was 721 million yuan, an increase of 41.47% over the beginning of the year, indicating that the company had sufficient orders on hand. The company's accounts receivable refund has strong seasonal characteristics, and the payback is relatively concentrated in the fourth quarter, which is optimistic about the company's performance growth in the fourth quarter.

In the long run, we are optimistic about the development of the company in the field of financial technology and the in-depth cooperation with BABA and Huawei Hayes.

Profit forecast

We estimate that the company's operating income from 2019 to 2021 will be 2.528 billion yuan, 3.139 billion yuan and 3.827 billion yuan respectively, and the net profit will be 391 million yuan, 493 million yuan and 616 million yuan respectively, and the EPS will be 0.49 yuan, 0.62 yuan and 0.77 yuan per share respectively, corresponding to the closing price of 15.14 yuan on October 28, and the PE will be 30.84,24.44,19.59 times respectively.

Risk hint: the company's R & D investment is not as expected; goodwill impairment risk.