The company's main business is system integration and software development, the main application areas are finance, medical, energy and other industries, and the product structure is constantly optimized, medical business competitiveness is strong, the company has great potential for in-depth cooperation with Tencent and Huawei.
The company's medical business is at the head of the industry. Donghua Medical, a wholly owned subsidiary of the company, currently serves more than 300 third-class first-class hospitals, accounting for 20% of the total number of third-class first-class hospitals. The gross profit margin of the company's medical business is in the first echelon of mainstream manufacturers. The company has a comprehensive product coverage and is one of the most comprehensive companies in the industry. In the field of DRGs business, Donghua Software has obvious advantages, and its market share is far higher than that of other manufacturers.
The medical IT industry continues to grow rapidly. Speeding up the information construction is the most effective way for hospitals to realize the control of medical insurance expenses. In 2019, the National Health Commission and other institutions issued policies to support the development of medical informatization with electronic medical records as the core. Driven by the policy, the medical IT industry developed rapidly. According to the forecast of IDC, the compound growth rate of the market from 2020 to 2024 was 13.7%. DRGs, which has the greatest advantage in Donghua Software, contributes about 1.3 billion yuan to the company's revenue every year.
Smart City has broad business prospects: Donghua Software is deeply bound with Tencent to develop Smart City business, Tencent provides the underlying technology, and Donghua Software is responsible for landing. The government has frequently issued heavy policies to support the development of smart cities, and the epidemic has also accelerated the development of smart cities. Some local governments realize the necessity of building a digital government and are determined to increase investment, and the construction of new infrastructure has also promoted the development of smart cities. According to the forecast of IDC, the domestic smart city industry will achieve a compound annual growth rate of about 16% from 2020 to 2024. Donghua Software is deeply bound with Tencent, one of the three major domestic solution providers, and is expected to benefit from the growth of the industry.
Server business has become a new growth point: Kunpeng 920 is the industry's highest performance ARM-based server CPU, breaking the foreign technology monopoly, domestic alternative space is large, by 2023, the domestic alternative market scale is about 25 billion yuan, the company's "Pengxiao server" is a scarce product, there are only four to five domestic competitors based on Kunpeng chips, benefiting from the demand for domestic alternatives. The company's server business will become a new growth point of the company.
Profit forecast: we predict that the net profit of the owner of the parent company from 2020 to 2022 will be 770 million yuan, 1.134 billion yuan and 1.426 billion yuan respectively, equivalent to 0.25,0.36 and 0.46 yuan EPS respectively. We cover for the first time and give the recommended investment rating.
Risk tips: 1) the growth of the industry is not up to expectations; 2) adverse changes have taken place in the industry policy
