Report guide
Revenue grew steadily in 2020, taking advantage of a large amount of goodwill to go to battle. Benefiting from localization, the wave of bank IT upgrades, and taking advantage of the momentum of Jianxin Jinke's rapid expansion of customers, its performance is expected to enter a rapid growth channel.
Key points of investment
Downstream bank customer demand is strong and revenue is growing steadily. With a one-time calculation of 780 million, Goodwill Light Packaging was calculated as bank customer demand picked up in 2020 and system integration revenue increased. In 2020, the company achieved revenue of 1,884 million yuan, an increase of 7.7% over the previous year. Due to the impact of the epidemic, loss of small to medium customers in the mobile marketing industry, business adjustments for large customers, rising traffic costs, changes in industry policies, etc., the company's mobile marketing subsidiary and Shanghai Ruimin are planning to reduce goodwill by 778 million yuan. In 2020, the company achieved net profit of -671 million yuan to the mother, and net profit after excluding the impact of accrued goodwill impairment preparations was 117 million yuan.
Jianxin Jinke's orders were more profitable, and the software gross margin increased slightly, increasing repayment operating cash flow by 36%. The gross margin for software development and services increased by 2.66 pct in 2020. It is expected that the gross margin of Jianxin Jinke's contract orders will be high, which is expected to drive a steady increase in the gross margin of the company's software business. Thanks to increased repayments and the company's full use of supplier credit policies, the company's net operating cash flow in 2020 was $232 million, an increase of 36.07% over the previous year.
Three waves of changes in the industrial cycle, localization, and system demand have been superimposed. Bank IT has begun a new upgrade cycle, benefiting from the bank's core system to the renewal cycle, system demand adjustments and technical architecture upgrades brought about by business mobility and internetization. Banks are gradually migrating systems to distributed systems, superimposing localization requirements under the influence of the international situation. It is expected that the banking IT industry is expected to usher in a high boom cycle in the future.
Taking advantage of the momentum, CCB's FinTech subsidiary Jianxin Jinke is rapidly expanding new customers and opening up a broad incremental market. The products of CCB's fintech subsidiary Jianxin Jinke are distributed and easy to promote. It is expected that CCB's position in the industry will accelerate the empowerment of peers. The company and Jianxin Jinke are strategic partners and are expected to take advantage of the momentum of Jianxin Jinke to expand new customers.
Profit forecasting and valuation
The company is expected to achieve net profit attributable to the parent company in 2021-2023 of 216, 307, and 417 million yuan respectively; year-on-year growth rates of 41.99% and 35.95% in 2022-2023; EPS of 0.48, 0.69, and 0.93 yuan; and PE corresponding to the current stock price in 21-23 will be 23, 16, and 12 times. The company was given 30 times its 2021 target PE, corresponding to a total market capitalization of 6.1 billion yuan and a target price of 13.6 yuan, giving it a “buy” rating.
Risk warning 1. Bank IT development falls short of expected risks; 2. Risk of brain drain.