The results for 2020 and the first quarter of 2021 were slightly lower than expected.
Donghua Software announced its results in 2020 and the first quarter of 2021: operating income in 2020 was 9.17 billion yuan, up 3.6% from the same period last year; net profit from home was 550 million yuan, down 5.7% from the same period last year; and non-net profit was 420 million yuan, down 13.7% from the same period last year. Under the influence of the epidemic, the implementation of the company's project lags behind, and the performance in 2020 is slightly lower than we expected. 1Q21 realized revenue of 2.03 billion yuan, up 17.5% from the same period last year, net profit of 110 million yuan, down 28.7% from the same period last year, and non-net profit of 110 million yuan, down 24.3% from the same period last year.
Under the epidemic, the project promotion cost rose, the net profit performance in the first quarter was lower than we expected, and the overall performance was slightly lower than we expected.
Trend of development
The epidemic delayed the progress of the overall project and recovered gradually in 2021. Affected by the epidemic, the arrival of the company's customer contract and the implementation of the project were delayed, which delayed the expansion of the main business. In terms of industry, the financial health industry contributed 5.897 billion yuan to the company in 2020, an increase of 3.4%. The epidemic accelerates the demand for online office and government information, and the company achieves an income of 800 million yuan in the government client, an increase of 14.5%, and its performance has improved steadily. At the same time, the project cost increased under the epidemic, and the operating cost of the technical services business increased by 52.8%, dragging down the overall profit growth. 4Q20 started the recovery process: the company achieved revenue of 3.6 billion yuan in the fourth quarter of 2020, an increase of 15.6%. 2021 the increase in revenue went further, and 1Q21's revenue also increased by 17.5%. We believe that there is still demand under the epidemic and the project has been postponed. The company's contract liabilities in 2020 increased by 22% compared with the previous year's advance payment, indicating that the order on hand is more abundant. With the resumption of customer bidding, the company's performance is expected to pick up gradually in 2021.
Looking forward to 2021: pay attention to the transformation of business model internally and deepen cooperation to build smart industry.
HOS started the subscription system transformation: at the end of 2020, the company released "HOS" (Hospital Operating System), a smart hospital solution for hospital customers and delivered in a subscription mode, marking the upgrading of the company from a digital hospital contractor to an application service provider that integrates consulting and services. Since its release, the company has signed SaaS mode HOS service contracts with Weifang people's Hospital and other hospitals, with a total amount of more than 200 million yuan. We believe that the subscription system can bring stable cash flow to the company, start a better business model transformation process, and recommend continuous attention to follow-up performance.
Focus on smart cities to strengthen external cooperation: in 2020, the company first put forward a "CMOS" (City Medical Operating System) solution for smart cities, and has laid out dozens of smart city benchmarking cases and potential customers. Facing 2021, the company plans to deepen the comprehensive cooperation with Tencent and Huawei to build the future smart industry technology ecological matrix around CMOS. The follow-up strategic synergy release is worth looking forward to.
Profit forecast and valuation
Taking into account the delay in the company's business progress under the impact of the epidemic, we lowered the company's 2021 revenue forecast by 12.4% to 10.42 billion yuan and net profit forecast by 34.6% to 780 million yuan. We introduced 2022 revenue forecast of 11.91 billion yuan and net profit forecast of 1.05 billion yuan. We maintained our outperforming industry rating and lowered our target price by 31% to 9 yuan (based on 35 times 2021 PE). The target price has 32% upside over the current share price, which corresponds to a price-to-earnings ratio of 2021 / 2022.
Risk.
The landing of the policy is not as expected; the transformation of the business model is not as expected; the market competition is intensified.
