1. Incidents
The company announced its 2020 semi-annual report. The company achieved operating income of 3.640 billion yuan in half a year, an increase of 1.30% over the previous year; realized net profit of 401 million yuan, an increase of 3.74% over the previous year; net profit after deducting non-return mother was 389 million yuan, an increase of 7.98% over the previous year.
2. Our analysis and judgment
1) Performance growth is relatively steady. The healthcare business continues to grow. The company achieved operating income of 3.640 billion yuan in the first half of 2020, up 1.30% year on year, with a slight slowdown; net profit after deducting non-return mothers was 389 million yuan, an increase of 7.98% over the previous year, and the growth rate declined relatively.
During the reporting period, the company's sales expenses were 184 million yuan, an increase of 13.27% over the previous year, management expenses were 274 million yuan, an increase of 3.91% over the previous year, and financial expenses were 521 million yuan, an increase of 42.15% over the previous year. The main reason for the increase in financial expenses was the increase in interest on loans and the decrease in interest on deposits during the reporting period; R&D expenses were 394 million yuan, and the R&D expenses rate reached 10.83%. Net operating cash flow was -1,060 million yuan, a year-on-year decrease of 21.22%. By industry, the company's core business, the financial industry business, continued to play a supporting role, achieving revenue of 1,380 million yuan, accounting for 37.91% of revenue, an increase of 3.51% over the previous year; another important business, the health industry business, achieved rapid growth, achieving revenue of 823 million yuan, an increase of 18.25% over the previous year; and the government industry business achieved revenue of 317 million yuan, an increase of 1.19% over the previous year.
2) Cooperation was reached with Tencent and Huawei. There is broad scope for future growth and transformation. In 2017, the company reached a cooperation agreement with Tencent Cloud and launched the smart city superbrain model with Tencent Cloud in December 2018, deepening the company's layout in the smart city field. During the reporting period, the company achieved government industry revenue of 317 million yuan, accounting for 8.70% of revenue. Future Cloud launched a smart city superbrain model, deepening the company's layout in the smart city sector. During the reporting period, the company achieved government industry revenue of 317 million yuan, accounting for 870 million yuan of revenue %, there is plenty of room for future growth; in March 2019, Donghua Medical, a subsidiary of the company, launched the “iMedicalCloud and Cloud HIS” product for Tencent Cloud, promoting the implementation of the “One Chain Three Clouds” strategy to further consolidate and enhance the company's advantages in the medical industry. The company collaborated with Huawei to launch the Kunpeng processor-based Pengxiao server in June 2020, and began building an industrial ecosystem around the Pengxiao server, promoting key technological breakthroughs in China's IT infrastructure and helping domestic production to innovate independently.
3) Constant growth drives the company's strategic transformation. Moving from a traditional IT company to a network service company. In May 2020, the company launched a fixed increase plan to raise no more than 4,013 billion yuan to increase investment in cloud computing, big data and industrial Internet, and accelerate the company's transformation from a traditional software and system integrator to an information industry solution and integrated service provider. The share of system integration in the company's business revenue fell to 60% from 66% in the same period last year, accelerating the transformation from traditional IT vendors to software service providers. At the same time as the business structure changed, gross margin increased by 2 pcts over the same period last year.
3. Investment advice
We expect the company's EPS to be 0.26/0.33/0.41 in 2020-2022, and the corresponding dynamic price-earnings ratio is 46.79/37.06/29.8 times, respectively. The company continues to develop in many ways, and the R&D ratio is gradually increasing. Benefiting from the wave of localization, the company's performance is expected to continue to grow at a high level in the future, and “recommendations” will continue to be given
ratings.
4. Risk warning
Risk of policy implementation and industry space growth falling short of expectations; long project cycles and weakening bargaining power with upstream and downstream manufacturers; the impact of the epidemic on project implementation progress; risk of impairment of goodwill.
