occurrences
According to the semi-annual report released on the evening of August 25, 2020, net profit attributable to parent company owners in the first half of the year was 693.1003 million yuan, an increase of 245.13% over the previous year; operating income of 289 million yuan, an increase of 59.88% over the previous year; and basic earnings per share were 1.02 yuan, an increase of 168.42% over the previous year.
Revenue is growing rapidly, and the business structure is continuously optimized
In the first half of the year, the company achieved revenue of 289 million, an increase of about 60% over the previous year. We expect the rapid increase in revenue for two main reasons: on the one hand, smart environmental protection prosperity is high, and the company's market share continues to increase. On the other hand, business restructuring and the shift to service models have led to a sharp increase in revenue from data operation services.
Expenses increased steadily. The scale effect made the profit growth rate significantly higher than revenue in the first half of the year. The company's sales expenses increased 42% year on year, management expenses increased 20% year on year, and R&D expenses increased 14% year on year, all lower than the 60% growth rate of revenue. The scale effect led to the company's profit growth of 2.45 times. We anticipate that with the transformation of the company's business model, the scale effect is expected to continue to be reflected from smart environmental protection to smart cities, from projects to operations, and smart environmental protection is the company's traffic entry business. From smart environmental protection to smart cities, it opens up a wider market space. At the same time, projects are the foundation of operations, and as the stock of projects continues to increase, the potential for future operating income continues to increase. Judging from the situation in the first half of the year, smart cities are expected to account for around 10% of the annual revenue, which is expected to increase in the future. At the same time, the rapid growth in operating business was an important reason driving the rapid increase in revenue in the first half of the year. As the benchmark effect of the company's operating projects continues to be reflected, the share is expected to continue to increase.
Profit forecasting and valuation
The company's vigorous development of smart environmental protection and smart city business is expected to be the main driving force for revenue growth in the next few years. At the same time, the high gross margins of the two businesses will drive the rapid development of the company's overall performance. We expect the company to achieve net profit of 165, 233, and 314 million yuan in 2020-2022. The company's R&D strength and growth rate are high, and the platform business will gradually improve to maintain the “buy” rating.
Risk warning: large customers rely on risk; risk of seasonal fluctuations; risk of increased industry competition; risk of technology replacement.