1Q20 performance is lower than we expected.
Suzhou Koda announced its 2019 and 1Q20 results: revenue in 2019 was 2.547 billion yuan, up 4% from the same period last year; net profit at home was 91 million yuan, down 72% from the same period last year, much lower than we expected, mainly due to the delay in bidding and implementation of some projects, and the decline in gross profit margin caused by the increase in the proportion of integrated products. 1Q20 revenue was 361 million yuan, down 36% from the same period last year; the net profit returned to the mother was-96 million yuan, down 292% from the same period last year, lower than we expected, mainly reflecting the stagnation or slower-than-expected progress of some projects caused by the epidemic.
Trend of development
In 2019, the company's video surveillance business revenue increased by 19%, but the gross profit margin fell 2.6% due to the increase in the proportion of integrated products; the video conference business revenue fell 11%, mainly due to the delay in bidding and implementation progress. At the same time, due to the change in the product composition of the command center and the increase in the proportion of outsourcing of integrated projects, gross profit fell 7.5 ppt, gross profit fell 6.6% in 2019.
Since 2018, the company has increased its strategic layout to increase R & D and market investment, and the number of R & D and sales personnel has increased from 1605, 1387 at the end of 2017 to 2552, 1930; R & D and sales costs have increased synchronously, increasing by 20% and 10% respectively in 2019. The company's R & D projects include converged communications, AI ultra-low-light technology, Taiwan software, mobile products and application platforms, etc.; sales to promote the industry, regional sinking. We believe that the company's revenue growth did not meet expectations and investment increased, so the performance declined. At the same time, some large projects with a longer cycle led to a 22% increase in accounts receivable, and the net operating cash flow also changed from positive to negative.
1Q20 affected by the epidemic, some of the company's projects temporarily stagnated or construction progress is slower than expected.
The company has basically resumed work since March, but the business time is limited, and the expenses are relatively rigid, so the net profit and cash flow are affected, and the financial indicators deteriorate obviously in the short term.
Profit forecast and valuation
Due to the impact of the epidemic, we are worried about the growth of the company's business in the second quarter. However, we also see that the demand for social security management system, emergency management system, video information system, big data and other applications is relatively rigid, and we are optimistic about the improvement of demand in the second half of the year. At the same time, the company also said that in addition to the existing key industries with government customers, it will actively develop industries such as education, intelligent transportation and supervision, and expand the coverage of its products and solutions. In addition, we do not think that the company's fees will increase significantly during the year.
We lowered the company's revenue forecast, kept expenses slightly higher than the same period last year, and lowered the 21-year net profit of 2020 by 38% to 222 million / 369 million yuan. The company's share price has recently recovered sharply, with the current share price corresponding to 2020 23x/14x 21. Maintain the outperform industry rating and cut the target price by 5% to 13.25 yuan, corresponding to 2020 30x/18x 21, which is 30% upside from the current share price.
Risk
Investment in government informationization or security has declined.
