Under the epidemic, Hong Kong was cut into Paradise Group and Hell Group.
Tourism, catering, retail and other industries are undoubtedly hell groups. After the parade in 2019 and the COVID-19 epidemic in 2020, inbound tourism has almost disappeared, and the unemployment rate in related industries has reached 13%, a 16-year high.
On the contrary, the financial industry has bucked the trend, of which$Futu Holdings Limited (FUTU.US) $The market capitalization quickly exceeded 10 billion US dollars.
Of course, in addition to the financial industry, there is also the cloud computing industry in the Paradise group. At this point, what everyone immediately thinks of must be mainland companies, like, Weimeng, and so on. What we are going to talk about today is the local IT company in Hong Kong, which benefits from the digital automatic system (00771.HK).
In the face of the epidemic, telecommuting has become an option for more people, which has greatly accelerated the digital transformation of various industries. Thanks to the epidemic, the performance of the automatic system listed on the motherboard went against the market in the first half of 2020, and both revenue and orders increased.
Moreover, due to the low attention, the valuation of the automatic system is seriously underestimated, and the performance in the first half of 2020 corresponds to about 10 times PE and 0.42 times PS.
Recently, funds from the south have come to Hong Kong to search for treasures, with the intention of eliminating the momentum of low-valued companies. There is room for growth and reasonable valuations. Is the present automated system a good investment opportunity?.
First, the company profile
Automatic system has a long history in Hong Kong. It was founded in 1973 and listed in 1997. It is a veteran information technology company in Hong Kong.
Its business is mainly divided into four parts, namely, system integration,Innovative industry solution business, intelligent network security service business and information technology integrated management serviceProvide various services including application development, network infrastructure laying, IT operation and other services for the Hong Kong government, colleges and universities, telecommunications groups, transport enterprises, large-scale financial and international famous enterprises. The latter three are the company's main business in the Asia-Pacific region, accounting for nearly 80% of the total revenue in the Asia-Pacific region.
To put it simply, automatic system is an ITaaS operator based on the Hong Kong market, while radiating Macao, extending to the Asia-Pacific region, Europe and the United States and other places.
Taking the cooperation with Macau Telecom in August 2020 as an example, Automation Systems and Macau Telecom joined hands to create a high-standard network information security center SOC ², which provides advanced network security technologies (including its own brand (A-TIP), an intelligent platform for network attack intelligence), combined with Macau Telecom's strong infrastructure to provide effective network security for Macau enterprises. It is understood that a lot of orders have been made since the launch of the SOC ²service, and the response is good.
At present, the company has more than 800 application development talents and a large agile DevOps development team, involving not only mature development technology, but also cloud computing, artificial intelligence and other innovative technologies, is Hong Kong's top IT service provider. In addition, with many years of customer resources in Hong Kong, Automation signed a memorandum of understanding on strategic cooperation with Aliyun in 2018 to jointly develop the cloud computing market in Hong Kong and Macau. Can get cloud computing leader BABA's recognition, its industry status is evident.
After establishing a firm foothold in the Hong Kong and Asia-Pacific markets, the business of automated systems began to expand to Europe and the United States.Due to the epidemic, the market demand for IT related to cloud computing, big data and artificial intelligence has increased significantly. The revenue of its European and American business GDH (Nasdaq: GDYN) in the non-retail industry increased by 46% in the second quarter of 2020 compared with the same period last year, and its customers include the world's top 500 enterprises such as Apple and Google.
From a fundamental point of view, automatic system is a small and beautiful company, over the years focused on IT services, continuous innovation, sound business, good cash flow, forming its own unique competitiveness.
Happen to encounter the accelerated development of enterprise digitization under the epidemic, what kind of new opportunities will the automatic system on the tuyere have?
II. Historical opportunities
In the first half of this year, the performance of the automatic system went against the market, and it was not easy when Hong Kong was hit by the epidemic and the unemployment rate hit a record high.
In fact, before the outbreak, automated systems companies had maintained rapid growth for three consecutive years, from 1.9 billion revenue in 2017 to 2.8 billion in 2019, an increase of nearly 50%.
Behind the revenue growth is the increasing number of orders, the expansion of the customer base and the long-term customer relationship.
According to the 2019 report, we can see that many of the company's new orders in 2019 come from new and old important customers, including government agencies, banking and financial institutions, large entertainment venues in Macau, and so on. The company's level of competition in the industry is constantly improving.
The expansion of the number of customers depends on the trend of global digitization. According to Gartner's forecast, global IT expenditure will increase to US $3.8 trillion in 2020, and there will be growth in every IT area, including IT services, data centers, communications and so on.
It can be said that from government to enterprise, digital transformation is a definite trend.
Hong Kong is no exception. For example, in terms of government public services, the Internet economy and smart cities have developed rapidly in the past few years. The Hong Kong Government has launched a "smart convenience" mobile application to provide an one-stop personalized digital service platform. This is a wide range of contacts. Important digital infrastructure for all public and private organizations and the people of Hong Kong, together with digital facilities such as 5G communications, is expected to bring about breakthroughs in the digital transformation of the community as a whole. The automated system will participate in this project and provide related development and information technology services.
There are many similar examples. Hong Kong's traditional economy, such as real estate and retail, has greatly promoted the progress of digitization with the arrival of the epidemic. For example, the automatic system won an order from a real estate developer under the epidemic. In order to deal with the epidemic prevention and control measures, the real estate developer commissioned the company to provide an online registration system (ORS) to run on the cloud platform. In this context, it is not surprising that the automatic system is popular against the market.
According to Hong Kong Financial Secretary Chen Maobo, Hong Kong is expected to have a significant recovery in the second half of 2021, when it is believed that the growth of automated systems will be more smooth.
III. Investment opportunities
Apart from the Hong Kong market, automated systems have also developed vigorously in the European and American markets in recent years.
Automated Systems bought Grid Dynamic International, Inc. (GDI) of the United States for $118 million in 2017. The two sides cooperate deeply in business and technology, while making full use of cross-selling opportunities, which has brought very good returns in recent years.
From 2016 to 2019, GDI's revenue grew at an annualised compound of 29.5% and became a data analysis service provider for top IT companies such as Apple Inc and Alphabet Inc-CL C.
In 2019, Automation sold GDI to ChaSerg, a listed US stock company, at a valuation of US $390 million. After the transaction was completed, Automation received a reward of HK $730 million and retained a 38.3 per cent stake in GDH, maintaining its position as the largest shareholder of GDH.
On the one hand, the deal raises enough cash for the automated system to invest HK $730 million in the company's existing business. The price of $390 million has more than tripled from the purchase price two years ago, and it has to be said that the company is also an expert investor.
On the other hand, the company holds a stake in GDH, and the independent listing of GDH will also contribute to its future capital expansion, thus supporting the continued development of its core business.
The deal is a win-win situation.
After the sale of part of the stake in GD, it is reported that the automated system will optimize the financial structure of the funds obtained, and continue to cultivate in its own areas of advantage, and increase investment in some future technologies.
For example, the company will continue to build a new business in the future-the first Asia-Pacific Integrated Operations Center (UOC). UOC is a cloud service platform launched by the company in May 2010. it combines cloud platform, core business and world-class data center company Equinix to launch IT Operation as-a-Service to provide customers with one-stop DevSecOps services. It is believed that this industry-leading business will enable the company to further integrate its business capabilities, capture medium-and long-term business opportunities in digital transformation, and continue to develop in the global digital tide.
The automatic system integrated operation center runs through the operation to realize the customer business docking.
The Automated Systems Integrated Operations Center introduces multiple application scenarios through innovation and technology to provide customers with one-stop 24 IT operation management services in an "as-a-service" manner.
Automated system management also pointed out that whether in the traditional IT operation or in the process of digital transformation, there is more and more interaction among application development, network security and service management, and the level of integration of the three will determine the success of digital business transformation, which is also the reason why UOC launched the market.
In the future, the company will increase its investment in the construction of UOC platform, with a total investment of more than HK $10 million now and in the next 3-5 years, including human resources training, optimization of service process and integration of different technologies to continuously strengthen the company's DevSecOps service delivery capability. In the new quarter, UOC platform also launched IOT applications in different scenarios to provide customers with hosted IT services to solve the problem of lack of IT talents in general enterprises, and further respond to changing customer expectations and solutions. In addition, both Hong Kong and Macao are determined to promote smart cities, cyber security is the foundation of building smart cities, and the company has the advantages of omni-channel Network Security and Information Security Operations Center (SOC+) and SOC ², which is expected to unleash more growth potential.
On the other hand, although GD is sold, it is still the fulcrum of European and American business, and the two routes will bring rapid growth for the company.
Although the growth is quite good, the automatic system is still very undervalued at present.
As of the first half of 2020, the turnover of automated systems is 1.01 billion Hong Kong dollars, and the annual revenue is about 2 billion Hong Kong dollars. PS is only 0.5 times, which is very cheap compared with other cloud computing companies, and even in Hong Kong stocks are extremely undervalued.
And there are many reasons for suppressing valuation.For example, the market may worry that the main market for automated systems is in Hong Kong and there is little room for growth.But in fact, there are many cases to show that the Hong Kong market is enough to support tens of billions of companies.
Hong Kong Television (01137.HK), for example, is also a company based in the Hong Kong market, but its shares have quadrupled in the past few years because of its excellent e-commerce business.
The track of the automatic system is also similar to that of Hong Kong Television, which is also a new economy with huge demand, and it is also hoped that the valuation level will be changed through the rapid growth in performance in the future.