Core ideas:

The company released its mid-2019 report that 19H1's total operating income was 2.7 billion yuan, an increase of 11.9% over the same period last year; its net profit was 410 million yuan, an increase of 37.3% over the same period last year; and its non-return net profit was 380 million yuan, an increase of 46.6% over the same period last year.

Despite the slow revenue growth, the company's revenue structure has been optimized, and the share of revenue from businesses with lower gross margins has declined, resulting in a year-on-year increase in overall business gross profit margin (3.5pct):

The revenue of software development and engineering services (including information, automation and smart cities) was 1.74 billion yuan, an increase of 8.7% over the same period last year. The gross profit margin of this business has improved, with an increase of 4.0pct over the same period last year. It is speculated that the proportion of revenue from smart cities with low gross profit margin may decline.

The operating income of service outsourcing (including IDC and IT operation and maintenance) was 890 million yuan, an increase of 31.1% over the same period last year. Among them, the market of IT operation and maintenance business is more mature, and it is speculated that the increment is mainly contributed by the growth of IDC revenue.

The operating income of system integration was 60 million yuan, a decrease of 50.4% compared with the same period last year.

In the report, the investment in the fourth phase of Baozhiyun increased by 200 million yuan (630 million yuan in 18 years), which advanced rapidly.

The ending inventory was 860 million yuan, an increase of 15.8% over the same period last year and 39.4% over the beginning of the year. The increase in inventory was mainly due to the growth of intelligence and automation business and the increase in project inventory. Or predict that the software development business will have a better growth in the second half of the year.

The expected results in 19-21 are 0.79 yuan per share, 0.97 yuan per share and 1.16 yuan per share, respectively.

It is estimated that the company's 19-year EPS will be 0.79 yuan per share, corresponding to 19-year PE41 times. The company is the leader in the domestic iron and steel information field, with strong certainty of performance in the past two years, and it is expected that iron and steel informatization and IDC will also have good growth in the medium and long term, giving the company 43 times PE in 19 years, with a reasonable value of 33.97 yuan per share, maintaining a "buy" rating.

Baoxin software(600845) China report comments: the income structure is optimized and the software development inventory is growing rapidly.