In 2020, the company recorded revenue of 69.96 billion yuan, a year-on-year increase of 5.7%, another record high. Among them, corporate distribution revenue increased 15% year over year to HK$409.1 billion, consumer electronics business revenue fell 7% year over year to HK$27.36 billion, and cloud computing distribution revenue increased 40% year over year to HK$1.68 billion. Gross profit for the period was recorded at HK$3.13 billion, with a gross margin of 4.5%. Net profit for the period was HK$1.07 billion, exceeding our previous expectations by about 10% and up 31.8% year over year.
Report summary
Performance resumed growth in the second half of 2020, the company's revenue in the first half of 2020 fell 4% year on year due to the impact of the epidemic, while revenue in the second half of 2020 increased 13.7% year on year and 42.7% month on month. It was quickly recovered in the post-pandemic era. Gross margin recorded 4.5%, which remained stable compared to the previous year. The company's expenses were managed reasonably, financial expenses were reduced by 34.4% year on year, administrative expenses were reduced by 3.0% year on year, and sales expenses increased 1.6% year on year. Benefiting from this, the company's net profit increased sharply by 31.8% year on year to HK$1.07 billion. Shareholders' return was recorded at 16.5% during the period, maintaining a high ROE level.
Enterprise systems and cloud computing revenue of fast-growing To-B businesses increased 15% and 40% year-on-year respectively to HK$409.1 billion and HK$1.68 billion in 2020. With the impact of the pandemic and the development of the online economy, the demand for enterprises to go to the cloud is growing rapidly. The company has now covered more than 300 high-tech information partners. The products represented in the cloud computing field include products from large and medium-sized IaaS vendors such as Alibaba Cloud, VMware, Azure, AWS, and Qingyun. Taking the rapid pace of industry development, the company's cloud computing business and enterprise service business quickly recovered. In 2020, it accounted for 60.9% of revenue, and revenue structure optimization was remarkable. Furthermore, the promotion of innovation and innovation policies has accelerated the pace of domestic substitution. The company cooperates with mainstream manufacturers in the domestic creative innovation industry and assists in promoting domestic IT innovation to achieve autonomy and control. Cooperating companies include well-known companies such as Wave, Lenovo, Huawei, and H3C.
The long-term development strategy strategically focuses on cloud computing business. In the future, the company will continue to strengthen investment in the cloud computing field to accelerate business development through a strong channel system; at the same time, the company will build a technology service platform to empower upstream and downstream, continue to improve operational efficiency and reduce costs; in addition, in the future, it will accelerate ecosystem construction through investment or mergers and acquisitions, especially the field of innovative industries and cloud services.
The broad prospects for cloud business benefit from the Internet and communications industry's demand for the cloud computing market. The company's cloud business is expected to enter the fast track of development, and structural improvements in profit margins are expected to have a significant effect on improving the company's performance. At the same time as the business structure changes, since the profit margins of the cloud computing business and enterprise service business are significantly higher than the lower profit margins of traditional businesses, structural improvements in the company's business are expected to bring leverage benefits to net profit growth.
With a “buy” rating, the target price remains at HK$10.0. Benefiting from the rapid growth of the company's to Class B business, the stability of the company's future performance growth and profit structure are expected to improve significantly. We set the 2021 E price-earnings ratio 12 times and gave a target price of HK$10.0 to maintain the “buy” rating.
Risk warning: ICT integrated service business competition intensifies; overseas business development falls short of expectations; cloud computing-related business growth is slower than expected.