In the first half of 2020, the company's traditional channel retail-related business was significantly affected by the pandemic. However, the rapid expansion of enterprise online and digital demand brought good development opportunities to the development of the company's cloud computing business and enterprise service business. On November 23, the company announced the acquisition of the cloud management platform RightCloud to further develop the strategic advantages of cloud service business. With the subsequent expansion of overseas business, enterprises with high profit margins serving the cloud service business are expected to grow rapidly, bringing leverage benefits to subsequent corporate performance growth in terms of business structure.
Report summary
The acquisition of multi-cloud management platform RightCloud announced the acquisition of cloud management platform software and service provider Yunxing Shenzhen on November 23. Its core business is RightCloud, a leading multi-cloud management platform in China. By acquiring this platform, the company will become one of the few vendors that can implement MSP (Cloud Management Service Provider) services in multi-cloud environments/platforms. Major MSP service providers provide “consulting-migration-management” one-stop cloud services to address the integration and management needs of cloud enterprises facing hybrid cloud and multi-cloud applications. According to public information, RightCloud is a neutral third-party cloud management and cloud operation software, and is the first batch in China to pass the “Trusted Cloud Multi-Cloud Management Platform” certification from the Ministry of Industry and Information Technology. After acquiring RightCloud products, the company has favorable strategies to deepen cooperation with existing cloud computing services, including strategic cooperation with cloud computing service providers such as Alibaba Cloud, HUAWEI CLOUD, and AWS, as well as enhancing the company's one-stop cloud service experience for enterprise-level customers and cross-border customers.
Cloud computing and enterprise systems revenue of fast-growing companies in the cloud computing and enterprise services business increased 19.6% and 14.5% year-on-year respectively to HK$709 million and HK$12.418 million in 2020 H1. With the impact of the pandemic and the development of the online economy, the demand for enterprises to go to the cloud is growing rapidly. The company has now covered more than 300 high-tech information partners. The products represented in the cloud computing field include products from large and medium-sized IaaS vendors such as Alibaba Cloud, VMware, Azure, AWS, and Qingyun. Taking the rapid pace of industry development, the company's cloud computing business and enterprise service business quickly recovered. The share of revenue in the first half of 2020 reached 45.6%, and is expected to achieve more than half of the revenue share in 2021, exceeding the revenue contribution of traditional mobile terminals and accessories products. At the same time as the business structure changes, since the profit margins of the cloud computing business and enterprise service business are significantly higher than the extremely low profit margins of traditional businesses, structural improvements in the company's business are expected to bring leverage benefits to net profit growth.
The prospects for the cloud business are broad, and the valuation is significantly underestimated, benefiting from the Internet and communications industry's demand for the cloud computing market. The company's cloud business is expected to enter the fast track of development, and structural improvements in profit margins are expected to have a remarkable effect on improving the company's performance. However, compared with listed companies in the same industry, the company's recent closing price corresponding to the TTM price-earnings ratio is 11.6 times the valuation, which is significantly lower than that of peers.
With a “buy” rating, the target price rose to HK$10.0, benefiting from the resumption of growth in cloud computing and enterprise services businesses, and the profit structure is expected to improve significantly. We priced the 2020E/2021E price-earnings ratio of 15.0/12.5 times and gave a target price of HK$10.0 to maintain the “buy” rating.
Risk warning: ICT integrated service business competition intensifies; overseas business development falls short of expectations; cloud computing-related business growth is slower than expected.