Introduction to this report:
Net profit for 2019H1 was 406 million yuan, an increase of 37% over the previous year, in line with our expectations. With the development of steel informatization, automation, and IDC, the company's profit is expected to grow steadily. Maintain the “increase in holdings” rating and raise the target price to 40 yuan.
Key points of investment:
The net profit of 19H1 was in line with our expectations, maintained the “increase in holdings” rating, and raised the target price to 40 yuan. The company's 2019 H1 revenue was 2,699 billion yuan, up 12% year on year; net profit was 406 million yuan, up 37% year on year. The revenue forecasts for 2019-2021 were maintained at 83.36, 100.12, and 11.892 billion yuan, respectively, and the net profit forecasts were maintained at 903, 10.81, and 1,296 billion yuan, corresponding EPS of 0.79, 0.95, and 1.14 yuan. Considering the increase in the company's gross margin and competitive advantage, the target price increase was 40 (+5.24, +15%) yuan, corresponding to 2020 PE42X, maintaining the “increase in holdings” rating.
The service outsourcing business is growing rapidly, and profitability is increasing. 2019 H1 software development and engineering services revenue was 1,744 million yuan, an increase of 9%; service outsourcing revenue was 889 million yuan, an increase of 31%; and system integration was 59 million yuan, a decrease of 50%. Benefiting from rapid growth in high-margin service outsourcing business, the 2019H1 gross profit margin was 32.4% (2018H1 gross profit margin 28.9%), up 3.5pct year on year, net profit margin 15.7% (2018H1 net profit margin 13.1%), up 2.6 pct year on year. Quarterly view: Q2 revenue was 1.354 billion yuan, down 3% year on year; net profit was 204 million yuan, up 38% year on year.
IDC's business advantages are obvious, and the integration of the steel industry provides new impetus for growth. The company relies on Baowu Group and has outstanding barriers to informatization and automation in the steel industry. Baowu's integration of heavy steel has broadened the company's business scope; Baowu, as an industry leader, still has room for improvement in overall production capacity scale and internal integration. The construction of a green smart steel ecosystem will undoubtedly spawn strong demand for informatization and automation, providing new impetus for the company's future growth. Relying on Baowu's land and other resources to enter IDC services, the company currently occupies an advantageous position in the Shanghai region. With expansion in Wuhan and other places, IDC's business is growing full of momentum.
Baoxin Software(600845) 2019 Interim Report Review: IDC and other service outsourcing businesses are growing rapidly, and profit quality is improving