Benefiting from the digital transformation trend of the industry, revenue grew steadily, commercialization increased, and profitability highlighted that the company released 2020 interim results on August 14, achieving revenue of 1.90 billion yuan (yoy +19.31%) in the first half of the year and achieving net profit of 66.6856 million yuan (YOY +35.44%). In the first half of the year, the company benefited from the catalysis of the digital transformation of the industry. The financial and public security sector won a marked increase in winning projects and new product expansion, and operating income maintained steady growth. At the same time, the company reduced costs and increased efficiency, improved commercialization capabilities, greatly increased net profit margins, and outstanding profitability. We expect the company's EPS to be 0.34, 0.43, and 0.58 yuan respectively in 2020-2022, maintaining the “buy” rating.
Revenue from the financial and public security business grew rapidly, benefiting from operators' 5G construction. The telecom business is expected to gain strength. Although the epidemic affected the company's telecom business confirmation revenue in the first half of the year, the company's total revenue continued to grow steadily, benefiting from new infrastructure and the catalysis of the industry's digital transformation. Among them, the company has successively obtained outsourcing service qualifications from a number of major banks in the outsourcing of e-commerce, telemarketing, and credit review services, and won bids for several public security projects, bringing the year-on-year growth rates of financial and government business revenue to 24.71% and 11.38% respectively.
At the same time, as the general distributor of government and enterprise affairs of Huawei, the company benefited from the rapid growth of Huawei's government business, and distribution business revenue increased 26.39% over the same period last year. Furthermore, we believe that with operators' 5G construction in full swing, the company's telecom BOSS business is expected to gain strength. Combined with digital transformation, it is expected that revenue growth from financial, government, military and other businesses will accelerate, and there is still room for the company's annual revenue growth rate to improve.
Increased commercialization, significant cost reduction effects, and outstanding profitability
20H1 achieved cost reduction and efficiency through management improvement, process optimization, and technological empowerment. The sales expenses ratio and management expense ratio were 2.90% and 8.66% respectively, down 1.01 and 2.57 percentage points from the same period last year. At the same time, the company continued to enhance its commercialization capabilities, bringing the net interest rate to 4.28%, an increase of 0.7 percentage points over the previous year, and profitability gradually increased.
The customer structure was optimized, and operating cash flow increased 2,108.12% year-on-year. The company actively expanded new customers in the first half of the year and carried out customer structure optimization, which led to a 14.75% decrease in accounts receivable compared to the end of 2019, and a significant increase in repayment capacity. At the same time, the scale of the company's new business categories expanded, causing its operating cash flow to increase 2,108.12% year-on-year.
Revenue is growing steadily, and profitability can be expected to continue to improve. Maintaining the “buy” rating, we continue to be optimistic about the core advantages that the company has accumulated in vertical industries over a long period of time. It is expected that it will benefit from the increase in the IT cloud boom of enterprises in the 5G era, leading to a situation where the three major fields of operators, government, and finance are blossoming more and more. We maintain the company's profit forecast for 20-22 EPS of 0.34, 0.43, and 0.58 yuan, respectively, and the corresponding PE is 26.05X, 20.45X, and 15.33X, respectively. Referring to Wind's consistent forecast, the average 20-year PE valuation of comparable A-share companies is 34.26 times. Considering that the company is currently in the big data business investment period, the company was conservatively given a 20-year PE of 30 times, with a corresponding target price of 10.20 yuan/share (the previous forecast value was 9.86-10.88 yuan/share), maintaining the “buy” rating.
Risk warning: Operators' 5G construction progress is lower than expected, and tenders for projects affected by the pandemic have been delayed.