2H23 revenue is expected to increase 15% month-on-month
We expect Mingyuan Cloud's 2H23 revenue to increase 15% month-on-month to 800 million yuan, in line with management's previous guidelines; the corresponding annual revenue was 1.64 billion yuan, down 9.8% year on year, and the decline narrowed 7.1 percentage points year on year. We expect 2H23's adjusted net loss to be narrowed to 70.41 million yuan. The loss margin was slightly larger than management's previous expectations. Mainly due to marginal order recovery, the company's customer acquisition costs increased accordingly; corresponding to the adjusted net loss of 160 million yuan for the whole year, the loss rate fell to 10.0% from 36.0% the previous year. We expect 2H23 operating cash flow to return to net inflows, and the net outflow for the whole year is expected to narrow year-on-year.
Key points of interest
The industrial infrastructure and stock market business are growing vigorously. Facing structural adjustments in the downstream industry, the company's strategy focuses on industrial infrastructure and stock markets, optimizes product layout, and focuses on deepening the digital needs of central state-owned enterprises, and launched new products such as state-owned big data supervision platforms and guaranteed housing operation and management platforms during the year; 1H23, the contract amount for state-owned enterprise customers increased by about 25% year-on-year, and the share of revenue increased to 45%. We expect that with product accumulation and industry experience in the residential market, the company has a clear first-mover advantage in its new target market and is expected to be the first to benefit from the release of market demand; we expect the project construction and asset management & operation product line to achieve double-digit year-on-year revenue growth throughout the year.
Continued promotion of “muscle gain and fat loss” has achieved remarkable results in reducing losses. Since 2022, the company has continued to optimize its personnel structure and promote labor efficiency; by the end of 1H23, the number of employees in the company had dropped from 4,247 at the end of 2021 to 2,925, and 1H23 personnel efficiency increased 11.9% year-on-year. As Mingyuan Cloud's SaaS application restructuring based on the Skyline PaaS platform is nearing its end and the product form is gradually maturing, we expect the company to continue to streamline the production and research team to achieve accelerated profit side restoration.
The increase in management holdings shows confidence. The company issued a voluntary announcement on January 9, 2024. Mr. Gao Yu, the founder and chairman of the company, and Mr. Chen Xiaohui, co-founder and vice president, increased their total holdings of the company's shares by about 2 million shares in the open market at a price of about HK$2.51-2.58 per share, accounting for about 0.1% of the total number of shares issued by the company.
Profit forecasting and valuation
The revenue forecast for 2023 and 2024 remains largely unchanged; considering the marginal recovery in demand and slightly higher than expected sales investment, we adjusted the adjusted net profit forecast for 2023 and 2024 from -92.54 million yuan and 20.26 million yuan to -160 million yuan and 9.32 million yuan. Introduce 2025 revenue and adjusted net profit forecasts of $1.88 billion and $51.79 million. Maintaining an outperforming industry rating, considering that market sentiment towards the real estate chain is still sluggish, the target price was reduced by 20% to HK$4 (based on 4 times the 2024 market sales rate). The company traded 2.4 times the 2024 market sales rate, corresponding to 61% upside.
risks
The real estate industry is declining; competition is intensifying.