The results for the first half of 2020 are in line with our expectations
Changjietong announced results for the first half of 2020: revenue was 203 million yuan, down 21.5% year on year; Guimu's net profit was 17.5 million yuan, down 81.0% year on year. Affected by the pandemic, the company's traditional software business is under pressure, but the cloud service business continues to grow. The company's performance in the first half of the year was basically in line with our expectations.
Development trends
The traditional software business is under pressure. Affected by the epidemic, implementation of local deployment projects was delayed in the first half of the year. Software business revenue fell 42% year on year, revenue share fell to 61% (69% in 2019), and gross margin fell 5 percentage points (gross margin of traditional software business was 96%, higher than 72% of cloud service business). As the epidemic gradually eases, we expect the decline in the software business to narrow to 5-10% in the second half of the year. Overall, we expect the company's annual revenue to still achieve positive growth of 5%-10%.
The cloud services business is booming. In the first half of the year, the company's cloud service business revenue increased 74% year-on-year to 78.66 million yuan, contributing 39% of total revenue (17% in the same period last year). Cloud transformation continued to accelerate, and the company aims to reach 50% of cloud revenue for the full year of 2020. The company's cumulative number of paying users reached 18,991 in the first half of 2020, an increase of 40% over the previous year. ARR increased 75% year over year in the second quarter of 2020. Cloud Finance (Good Accounting and Easy Accounting) revenue increased 40% year over year to 17.31 million yuan, and the number of new users reached 19,249. Revenue from cloud ERP products (T+ Cloud) increased 75% year-on-year to 44.83 million yuan, with 4,924 new users added during the period. Entering SaaS products (Good Business and Smart+) added 8,527 new enterprise users in the first half of the year, making a good start since it was first launched in 2019.
SaaS business operating indicators continue to improve. Although the pandemic has put pressure on the operation of the company's downstream SME customers, the customer churn rate of Changjietong SaaS products in the first half of the year dropped by 2 percentage points to 36%. At the same time, ARPU stabilized at 1,279 yuan, showing resilience in Changjietong's cloud business, which bucked the trend. Compared to 2019, the customer lifetime value (LTV) increased from $3,418 to $3,553, and the cost of user acquisition (CAC) dropped from $2,333 to $1,917.
The LTV/CAC ratio reached a new high of 1.9 in the first half of the year, reaching 1.9, a further step towards the 2021 target (LTV/CAC reached 3).
Profit forecasting and valuation
Considering the decline in traditional software business under the pandemic, we lowered our 2020 and 2021 revenue forecasts by 7% and 1% to 499 million yuan and 568 million yuan respectively, while lowering our net profit forecasts by 8% and 2% to 9081 million yuan and 108 million yuan. The current stock price corresponds to 26.7 times the 2020 price-earnings ratio and 22.4 times the 2021 price-earnings ratio. Maintaining an outperforming industry rating and target price of HK$15 (valuation switched to 2021 segment plus total valuation), there is room for 19% improvement from the current stock price.
risks
Market demand is weak; sales expenses are high.
