Summary of the report:
Event: the company released 19Q3 results on October 29, with revenue of 208 million yuan, down 20.28% from the same period last year, and net profit of 18.22 million, down 54.96% from the same period last year. The gross profit of the company's main business has not changed much compared with the same period last year, and the cost has increased slightly. The balance of monetary funds in the reporting period decreased by nearly half compared with that at the beginning of the year, and both receivables and prepayments nearly doubled, which is the normal performance of enterprise transformation exploration and overseas expansion strategy, in line with expectations.
Comments: the decline of traditional business income, seeking a preliminary exploration of transformation
As a company that accounts for nearly 80 per cent of USB KEY and dynamic token business, Feitian's integrity performance has fallen in line with expectations amid a shrinking market for traditional payment products such as USB KEY. In this regard, enterprises have shown firm determination to integrate safety technology into more product forms, such as the Chinese Agricultural Bank Of China scan box launched by the company, making full use of their advantages in the financial field to expand the market. At the same time, the company extends its chip products to the field of intelligent Internet of things devices, such as XIAOMI's "crowdfunded" Bluetooth device, which develops its products from a single market to a diversified market.
Increase monetary investment and lay out research and development in many fields
The monetary fund at the end of September 30, 2019 was 365954671.84 yuan, a decrease of 44.76% compared with the beginning of the year, as a result of the current payment of Hongsi's equity acquisition. In January 2017, Feitian Integrity acquired a 91.36% stake in Beijing Hongsi Electronic Technology Co., Ltd for 199 million yuan. Hongsi Electronics has complete independent intellectual property rights and technological leadership in random number chips, dedicated high-performance cryptographic algorithm chips and commercial information security SOC chips.
As the upstream supplier of the company, Hongsi Electronics can fully combine the company's COS operating system and application development capabilities and technological advantages with the chip design capabilities of the target company, realize the coordinated development of technology, products and markets, promote product innovation and business development, and enhance the competitiveness of the company.
Expand the overseas market with the advantage area of "identity authentication" and create an international market under the circumstances that global information security expenditure is growing strongly and the security needs of enterprise customers have gradually become the main force, Feitian Integrity actively explores overseas cooperation opportunities and becomes a member of the board of directors of the FIDO Alliance by virtue of its own strength. There are only three in China, reflecting Feitian's reputation and status overseas. Prior to this, the company gradually laid out its business centers in the United States and Hong Kong, and realized its investment in Malaysia's SECUREMETRICBERHAD (Shike Technology Co., Ltd.) during the reporting period. At present, the company's active smart cards have been shipped to overseas markets, mainly customers from Europe and Taiwan and other regions. On the premise of maintaining the domestic market share, the company will continue to enter the overseas market by virtue of technological advantage and price advantage.
Company profit forecast and investment rating: the company is a domestic first-class and overseas well-known provider of information security products. We are optimistic about the performance growth brought about by the transformation of the company's overseas output and the Internet of things. We estimate that the return net profit of the company from 2019 to 2021 will be 1.62 million yuan and 174 million yuan, and the corresponding EPS will be 0.39 yuan, 0.42 yuan, 0.45 yuan, respectively. The current stock price corresponds to 2019-2021 PE value of 38-36-33 respectively. Give a "recommended" rating.
Risk hints: the risk of intensified market competition in the future, the loss of core technical personnel and the risk of core technology leakage.