Introduction to this report:
Priority is given to subscriptions, and the share of cloud service revenue continues to rise. Prioritize AI and continue to promote innovation in AI applications. Financially, the increase in the SaaS ratio helped increase gross margin, while the total number of employees declined slightly, and the pace of the company's loss reversal is expected to accelerate.
Key points of investment:
Maintain the target price of 13.31 yuan and maintain the “Overweight” rating. Maintaining the forecast for 2024-2026, net profit attributable to mother was -0.031, 0.168, and 0.386 billion yuan, respectively. The target price of 13.31 yuan was maintained, and an “increase in weight” rating was given.
Prioritize subscriptions and accelerate the transformation of the cloud subscription service model. 2024H1's revenue of 2.87 billion yuan increased by 11.9%, and net profit to mother of 0.218 billion yuan decreased losses by 23.2%, mainly due to the gradual effects of large-scale enterprise business. Net operating cash flow of -0.166 billion yuan was basically the same as -0.169 billion yuan in the same period last year. The gross profit margin increased by 1.3 pct year on year by 63.2%, mainly due to the increase in the share of subscriptions. The marketing/management/R&D expenses ratio was 42.7/8.7/ 28.1%, down 1.8/0.6/0.9 pct year on year, respectively. The results of cost reduction and efficiency were remarkable. Cloud service revenue of 2.39 billion yuan increased 17.2%, accounting for 83.2%, up 3.7 pcts year-on-year, and the subscription priority strategy showed further results. Cloud subscription service ARR increased 24.2% to 3.15 billion yuan, and related contract liabilities increased 28.2%.
From the customer's perspective, make it sophisticated and large, make it medium, and make it broad and small. (1) Seizing opportunities for large enterprises to accelerate digital transformation and localization alternatives, the 2024H1 Sky+ Xinghanyun service revenue of 0.546 billion yuan increased 38.9% year over year, contract amount increased 63%, ARR increased 29%, and NDR was 97%, down 11 pct year on year, or due to the short-term impact of internal strategy adjustments or delays in solution selection in large enterprises. (2) Continuing to deepen the product advantages of integrating R&D, production, supply, sales, and services, and seize the market opportunities for Chinese enterprises to go overseas. Starry Sky's revenue of 1.054 billion yuan increased 14.3% year over year, ARR increased 24%, and NDR of 95% decreased by 1 pct year on year. (3) Continuing to lead the small and micro enterprise market. Xiaowei Finance Cloud's revenue of 0.588 billion yuan increased 17.3% year over year, and ARR increased 31%. Among them, Star's revenue increased 70.8%, and NDR was 92%, up 3 pcts year on year.
(4) Traditional ERP and other business revenue of 0.481 billion yuan decreased 8.8% year over year.
Prioritize AI, combine the company's own cost reduction and efficiency, and the profit inflection point is approaching. On the one hand, the company expanded rapidly with new customers in large, medium, and various types of markets, leading to steady revenue growth. On the other hand, the company continues to promote innovation in AI applications, and the share of cloud service revenue continues to increase, and gross margin is expected to continue to rise. The total number of employees at the end of 2024H1 was 12,162, down 1.5% from the end of 2023. The pace of the company's loss reversal is expected to accelerate, which in turn will usher in an inflection point in profits.
Risk warning: Product development upgrades are not timely, and competition in the ERP and cloud service markets is intensifying