Event: on the evening of August 25, 2020, the company released its semi-annual report in 2020, with an income of 289 million yuan, an increase of 59.9% over the same period last year, a net profit of 69 million yuan, an increase of 245.1% over the same period last year, and a net profit of 63 million yuan after deducting it, an increase of 205.9% over the same period last year.
Rapid development of intelligent environmental protection, environmental protection fine management and control market penetration continues to improve. In the first half of the year, the revenue of the intelligent environmental protection sector of the company reached 261 million yuan, up 124% from the same period last year, accounting for 90.6% of the business income. The company's intelligent environmental protection business takes data operation analysis as the core, and intelligently assists the decision-making of customers (mainly government customers) by providing multi-scene and multi-source data services and dynamic control. In the first half of this year, the company's comprehensive gross profit margin was 48.5%, a slight decrease of 3 pct compared with the first quarter, and the operating net cash flow was-114 million yuan, which was basically the same as that in the same period last year. This is mainly due to the fact that the fine environmental protection management and control systems in domestic cities are still in a state of low permeability, and many cities still need to lay pre-monitoring hardware equipment (gross profit margin is relatively low compared with operating services). The government generally has an installment payment and acceptance mechanism for hardware laying. The current continuous expansion of smart environmental protection business is expected to become a reservoir for the company's sustainable performance growth, and we expect that in the future, with the completion of hardware deployment in various cities, back-end high gross margin data analysis and operations will continue to push up the company's overall gross profit margin.
Significantly increased R & D investment, Internet of things platform, AI and big data mining to support the company's business and business model transformation and upgrading. The company invested 34.64 million yuan in research and development in the first half of this year, a substantial increase of 77.2% over the same period last year. The company's Internet of things IoT platform has the ability to access millions of devices concurrently and has a SDK library of more than a thousand communication protocols, breaking through the difficulty and threshold of data acquisition. Continue to build AI algorithm ability, ranked fifth in Green Deep pupil trilion pairs worldwide, and become Huawei's AI partner. Eight new AI invention patents were added in the first half of this year, and continued innovation in air pollutant concentration prediction algorithms. Strive to form a national "environmental dynamic map" and build a moat of technology and data. Use technology to support the transformation and upgrading of the company's business and business model (from construction project system to annual operating service fee system).
Maintain a "buy" rating. We estimate that the company's income from 2020 to 2022 will be 789 million yuan, 1.194 billion yuan and 1.643 billion yuan, and the corresponding net profit will be 240 million yuan, 392 million yuan and 568 million yuan respectively. In the long run, as the government pays more and more attention to the informationization of intelligent environmental protection, especially the data operation services that can achieve multi-sector data linkage and cooperation, under neutral expectations, we expect the company's data operation service revenue to be 2.09 billion yuan, and the long-term market capitalization space is expected to reach 25.1 billion yuan, corresponding to 12 times PS valuation.
Risk hint: market competition aggravates risk; technological innovation risk; gross profit margin decline risk; assumption and estimated deviation risk.