Event: on the evening of April 20, 2020, the company released its annual report in 2019 and quarterly report in 2020. In 2019, the operating income was 1.016 billion yuan, down 35.1% from the same period last year, and the net profit was 70 million yuan, down 17.1% from the same period last year. The net profit after deducting non-return was 62 million yuan, down 18.4% from the same period last year. In the first quarter of 2020, the income was 155 million yuan, down 50.0% from the same period last year, and the net profit was 28 million yuan, compared with a profit of 53 million yuan in the same period last year.
The income structure improved and gross profit margin bottomed out. On the one hand, the decline in revenue in 2019 was due to the contraction of the company's low gross margin (about 15.8%) business, and the composite gross profit margin showed obvious signs of bottoming out, rising to 44.84% in 2019. In the future, with the further promotion of ultra-high definition 4K/8K, the company's overall gross profit margin is expected to rise further. However, the impact of the epidemic in the first quarter of 2020 was significantly lower than the same period last year, resulting in a nearly 50% drop in revenue in the first quarter.
The index of operating cash flow in 2019 is good, and the company has plenty of funds on hand. The company refreshed the best annual operating net cash flow (hereinafter referred to as "OCF") data in 2019, and the OCF was positive for all four quarters in 2019. Due to the pace of resumption of work by COVID-19 in the first quarter of 2020, the OCF in a single quarter was-39 million yuan, and the cash return ratio in 2019 reached 146.5%. At the end of 2019, the monetary fund reached 1.82 billion yuan, and accounts receivable decreased significantly by about 420 million yuan compared with the same period last year.
5G + UHD 4K/8K benchmarking cases continue to hit the ground, and the scarcity qualification supports the outbreak of live star business in three years. Relying on the reserve of underlying video technology, the company helped a number of large-scale events (events) of ultra-high-definition 4K/8K scenes to land in 2019 alone, using one benchmarking case after another to prove the company's technology and product strength, laying the foundation for future benchmarking case replication and expansion. As the core leading manufacturer in the field of UHD codec, the company still has good development opportunities under the promotion of 5G+4K/8K industry in the future. At the same time, in the next three years, the company is expected to benefit obviously from the wave of industrial renewal brought about by the live star business, and the profit flexibility will be centrally released.
Bohui Technology has been Science and Technology Innovation Board for a while, and Digital Technology's 14.98% stake is the second largest shareholder. On April 7, 2020, Bohui Science and Technology became the 18th enterprise that Science and Technology Innovation Board had a meeting this year. Before this issue, Bohui Technology has a total share capital of 42.6 million shares, and Digital Technology holds 6.38 million shares, accounting for 14.98%, ranking the second largest shareholder. In 2019, Bohui Science and Technology achieved an income of 275 million yuan and a net profit of 51 million yuan. In the future, if Bohui Science and Technology successfully arrives on the board, it will probably bring higher investment returns to digital technology.
Maintain a "buy" rating. We expect the company to achieve income of 981 million yuan, 1.214 billion yuan and 1.378 billion yuan from 2020 to 2022, with a net profit of 76 million yuan, 222 million yuan and 271 million yuan, corresponding to the current share price PE of about 93.9,32.0 and 26.2 times, maintaining a "buy" rating.
Risk hints: the risk that the progress of industrial investment and policy implementation is lower than expected; the risk of technological renewal; the risk that the macro environment is lower than expected.