Key points of investment
Incident: On April 26, 2024, DreamNet Technology released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 5.234 billion yuan, a year-on-year increase of 25.90%, and realized net profit of 1,822 billion yuan, a year-on-year decrease of 152.40%; in 2024Q1, the company achieved operating income of 1.110 billion yuan, a year-on-year increase of 6.27%, and achieved net profit of 88373 million yuan.
Due to falling gross margins+delays in new business, 2023 results fell short of expectations, and 2024Q1 continued to fluctuate under pressure. In 2023, DreamNet Technology achieved revenue of 5.234 billion yuan, a year-on-year increase of 25.90%, and achieved net profit of 1,822 billion yuan, a year-on-year decrease of 152.40%. The company's comprehensive gross margin was 6.28%, down 3.06 percentage points from the previous year. The pressure on performance was mainly due to a decline in the company's service information business volume in the cloud SMS business. Increased industry competition and higher expenses caused by multiple factors. In addition, 5G messaging expansion and ecological cooperation for the new business are progressing higher than expected due to improvements in cooperation models with operators Due to delays, the growth trend in business volume fell short of expectations. During the reporting period, the company prepared 1,608 billion yuan for impairment of goodwill for its subsidiary Shenzhen DreamNet Technology Development Co., Ltd. 2024Q1 was affected by macroeconomic trends, current policies, and the initial switching of operator messaging platforms. The company's cloud SMS, especially service SMS business volume, and 5G rich media messaging business volume declined year-on-year. Combined with factors such as asset impairment and exchange rate losses, the company's 2024Q1 net profit decreased by 19.73% compared to the same period last year.
Profits declined due to high management expenses, and equity incentive plan exercise payments were the main reason. The company invested in advance to promote the establishment of a new business platform, making the company's expenses high. The company's sales/management/financial expenses in 2023 were divided into 1.88/1.48/0.37 billion yuan, compared with +2.83%/+94.78%/+37.50%. The increase in management expenses was mainly due to the exercise of the company's equity incentive plan during the reporting period and the implementation of the equity incentive plan by the holding subsidiary Dreamnet International Communications, which led to an increase in share payment expenses; the increase in equity incentive costs during the reporting period was 124.713 million yuan. The performance of some equity incentive plans during the previous year's reporting period reduced share payment fees by 39.98777 million, an increase over the previous year 131.19% In 2023, the company continued to invest in R&D, successfully applying for 15 patents and 20 software copyrights. The R&D cost was 106 million yuan, accounting for 2.02% of the company's revenue. By continuously increasing its support for the technical field, the company promoted business innovation and led the continuous implementation of high-quality innovation achievements.
Actively expand overseas markets for cloud communications, and international business is developing rapidly. During the 2023 reporting period, the company's international cloud communications business grew rapidly, with international business revenue of 606 million yuan, an increase of 181.49% over the previous year, accounting for a 6.4% increase over 2022, to 11.57%. 2024Q1, the company's international cloud communications business revenue increased 88.66% year over year. The company's international communication business provides a one-stop solution for cross-border e-commerce, overseas gaming, online social networking, logistics, finance and other enterprises to go overseas. It integrates products such as international cloud SMS, RBM, WhatsApp, Viber, Voice Voice Verification Code, etc., to provide customers with a full range of messaging services. In terms of overseas operators, DreamNet International has signed strategic cooperation with operators such as “China Mobile (Hong Kong) Limited, Hong Kong Telecom Telecom Group Co., Ltd., Hutchison Telecom Port Holdings Limited, CTG, CUG, Etisalat, and VodafoneIndoSat”. The business has covered 225 countries and regions around the world, and more than 1,200 operators have signed strategic cooperation. The company's international cloud communication business has a clear competitive advantage in terms of technological products and platform innovation and industry certification and cooperation. The company's cloud communication platform provides customers with diversified access channels. This strategy not only ensures a high delivery rate of customer information, but also improves the customer's operational efficiency and user experience, making DreamNet International's services more attractive.
The commercialization of 5G messaging continues to advance, and the prospects for information-based services are broad. In the process of 5G messaging development, operators have established a 5G messaging platform covering 800 million terminals to form a 5G messaging solution that integrates three communication (5G messaging, 5G messaging, video) and covers all terminals. Currently, for the industry, the 5G messaging business in the ToB field will become a new business growth point in the next ten years, and the market space is huge. As a leading 5G messaging and cloud communication service provider in China, DreamNet Technology has established a comprehensive cloud communication platform service capability with multiple formats, cross-platform, low latency, and wide coverage, with remarkable advantages. In addition, in the period from 2022 to 2023, DreamNet Technology successively selected Mobile Internet's “SMS Mini Program Partner”, signed a “5G Message Fallback Solution Technical Service Contract” with Telecom Cell, and signed a “Zhixin Technology Service Contract” with Unicom Online Information Technology Co., Ltd. At the same time, based on the core technology accumulated in the field of communications and terminal services, the company reached cooperation with Huawei, Xiaomi, Honor, OPPO, and VIVO to establish online operation capabilities that support 800 million+ terminal coverage. The successful construction of 5G messaging has brought huge new development space to the upgrading of the SMS market in the industry, and has also laid the foundation for the successful large-scale commercialization of 5G messaging solutions. As the industry accelerates development, the company's information service business can be expected in the future.
Investment advice: The company is the largest enterprise cloud communication service provider in China. It has become an industry leader in the B2C instant messaging field and has formed a certain competitive advantage. As 5G messaging is commercialized on a large scale, the company is expected to continue to benefit. We forecast the company's 2024-2026 revenue of 63.95/76.28/8.915 billion yuan, a year-on-year increase of 22.2% /19.3%/16.9%, net profit to mother of 1.46/2.19/351 million yuan respectively, up 108.0%/50.3%/46.7% year-on-year, corresponding EPS of 0.18/0.27/0.40 yuan and PE of 42.1/28.0/19.1. The first coverage gave it an “increase in holdings” rating.
Risk warning: New product development falls short of expectations; 5G messaging business expansion falls short of expectations; market competition intensifies; risk of fluctuations in overseas markets, etc.