Overview of events

The company released its three-quarter report for 2020, with operating income of 1 billion yuan in the first three quarters, down 6.7% from the same period last year, and net profit of 40 million yuan, down 29.2% from the same period last year, which was lower than market expectations.

Analysis and judgment:

Financial technology revenue recognition delay + mobile marketing business shrank, growth was lower than expected 2020Q3 achieved revenue of 1 billion yuan, down 6.7% from the same period last year, of which financial technology business contributed 800 million yuan, down 4.0% from the same period last year, mainly due to the postponement of business and revenue recognition. It is worth noting that the implementation of the new revenue guidelines by the company in 2020 further led to the postponement of project confirmation (inventory + 238.2% from the beginning of the year). In addition, the mobile marketing business contributed 200 million yuan, a sharp drop of 15.7% compared with the same period last year. Under the influence of the epidemic at home and abroad, the scale of the business shrank and the recovery progress was not as expected. At the gross margin level, 2020Q3 gross profit margin remained at 23.5%, with no significant change. Of the total gross profit of 240 million yuan, financial technology contributed 190 million yuan (year-on-year + 9.6%) and mobile marketing contributed 47 million yuan (year-on-year-43.2%), the latter showed a big drag. In addition, another major reason why the company's performance was lower than expected was that the participating companies lost a lot of money, affecting the current profit of 13.24 million yuan, and the profit end was under further pressure.

Order growth is still optimistic, cooperative Jianxin Jinke brings deterministic incremental business, although the fundamentals are not as good as expected, industry research experience shows that the demand for software orders from bank customers since the beginning of the year is very strong, judging that the new orders of Q3 company are still underestimated. At present, there are three main supporting factors for bank IT demand expansion: 1) the upgrading wave of bank distributed core system is under way, and the transformation of core system leads the six major peripheral systems to follow up the supporting transformation, with a total increment of more than 50 billion, which has been gradually released in 2020; 2) under the background of Sino-US game, self-control has become a major trend, and financial innovation has been greatly promoted, which further brings domestic alternative demand. 3) the investment cycle of bank IT (hardware) is 4-7 years, which has been 7 years since the last low point in 2013, and is now ushering in a new high economic starting point. In addition, taking into account the active output of CCB's IT subsidiary, Jianxin Jinke, which cooperates deeply with the company, in the new cycle of bank IT, it is judged that the company will obtain deterministic incremental business, and the follow-up is still promising.

The digital currency pilot project has entered a new era, and the landing expectation is expected to bring valuation catalysis 2020 is the foundation year of the central bank's digital currency (DCEP). Since October, the digital currency red packet pilot project has landed in Luohu District, Shenzhen City, and 10 million yuan of "gift Luohu Digital RMB Red packet" has been distributed to individuals in Shenzhen, which can be used for consumption by designated merchants in Luohu District. In this round of pilot projects, the test subjects have begun to turn to all social workers in Shenzhen, approaching the "fully public" test. at the same time, the business infrastructure, including POS machines, has also been renovated in more than 3000 businesses, and progress has exceeded expectations. Judging that the overall progress of digital money is accelerating, we do not rule out the possibility of landing during the year. We believe that digital money will bring great opportunities for change in the central bank side, the bank side and the public side, in which the bank-side transformation has the greatest certainty, and the company, as a potential beneficiary, is expected to meet a double rise in valuation / performance.

Investment advice:

Taking into account the possibility that the project revenue is recognized in the Q4 set, keep the profit forecast unchanged, the company's revenue is expected to achieve a year-on-year growth of 22.5% from 2020 to 2022, and homed net profit from 2020 to 2022 will achieve a year-on-year growth of 36.4%, 29.4% and 27.2%. It is estimated that the net profit of homing from 2020 to 2022 is 1.82 billion yuan, respectively, and the corresponding EPS is 0.41, 0.53, 0.67 yuan, respectively, maintaining the "buy" rating.

Risk Tips:

The competition in the industry intensified; the IT input budget of downstream banks fluctuated more than expected; and the progress of the central bank's digital currency landing was not as expected.