Event: according to the semi-annual report released by Hande Information in 2020, the company's operating income in the first half of the year was 1.189 billion yuan, down 25.83% from the same period last year; the net profit was 25.5526 million yuan, down 84.81% from the same period last year; and the net profit after deducting non-return was 9.0469 million yuan, down 93.80% from the same period last year. The government subsidy included in the profits and losses of the current period is 20.3304 million yuan.

The slowdown in traditional ERP demand and the superimposed epidemic affected the decline in revenue, independent products became a new driver of performance, and the overall gross profit margin fell to a previous low: since 2020, the company's related business revenue has declined due to the impact of the slowing down of demand for traditional ERP and related information software. Of this total, revenue from software implementation business reached 781 million yuan, down 30.36% from the same period last year; revenue from customer support business reached 239 million yuan, down 25.32% from the same period last year; and revenue from software outsourcing business reached 104 million yuan, an increase of 3.19% over the same period last year. This is mainly due to the increased demand for resource outsourcing and project subcontracting services. From the product point of view, under the influence of the external environment, the company's product structure has gradually transferred from traditional ERP products to independent products in the periphery of ERP. In the first half of 2020, independent products accounted for 31.7%, 13.15% and 74.59% of revenue in software implementation, customer support and operation and maintenance services, and software sales, respectively, which was an important source of revenue for the company in the first half of the year. Independent products account for 26% of total revenue and have gradually become a new driving force for performance growth. In terms of gross profit margin, the company's overall gross margin is 29.24%, down 5.22% from the same period last year and is currently at an all-time low. Among them, software implementation business 25.33%, down 9.64pct; software outsourcing business 21.71%, down 2.76pct; and customer support business 39.34%, an increase of 3.65pct over the same period last year, mainly supporting the smooth progress of large-scale overall operation and maintenance projects and independently developed new SaaS operation and maintenance products.

The three fees remained at a low level, R & D investment remained stable, and cash flow improved significantly: in the first half of 2020, the company's expense rate (excluding R & D) was 13.28%, basically the same as the previous period. Of this total, sales expenses were 58.394 million yuan, down 46.04 percent from the same period last year, mainly due to the sharp reduction in travel expenses caused by the slowdown of the company's business scale and the impact of the epidemic; management expenses totaled 94.4343 million yuan, down 15.80 percent from the same period last year; and financial expenses totaled 5.0679 million yuan, an increase of 152.75 percent over the same period last year. It is mainly caused by the exchange gains and losses of the company's foreign currency assets due to exchange rate changes and the increase in bank loan interest. In terms of R & D, in recent years, in order to further expand the depth of the industry and develop its own products and business, the company's R & D investment has maintained a trend of growth. In the first half of this year, the company's R & D investment reached 108 million, down 3.13% from the same period last year. In the future, the company will continue to maintain the existing scale of R & D investment, adhere to independent innovation, and at the same time increase the research and development of financial tools and models in the innovative supply chain, so as to provide platform support for the cooperation between core enterprises and financiers. In addition, the company's net operating cash flow in the first half of the year was 70.3211 million yuan (- 374 million yuan in the same period last year), mainly due to the reduction in the scale of factoring loans and the increase in accounts receivable.

To create an information benchmark for intelligent manufacturing, independent cloud applications contribute to profit growth: under the tide of industrial Internet, cloud computing and big data, the company continues to explore emerging areas and expand the product matrix. In terms of intelligent manufacturing, the company has launched competitive and complete industry solutions in many segments to help manufacturing customers establish a complete set of landing solutions from personalized customization, collaborative supply chain to intelligent manufacturing. At present, there is a marked increase in business opportunities for enterprises with weak informatization in the traditional manufacturing field. through upgrading the overall structure of its own product system and strengthening its ability to implement on a large scale, the company is expected to tap orders in key industries and create intelligent manufacturing benchmarking projects. seize the business opportunities brought about by the expansion of the intelligent manufacturing market. In terms of cloud applications, the company's independently developed HAP Cloud application development platform, HCMP cloud management platform-Hande fusion cloud governance platform, Choerodon pig tooth fish digital platform and Yanqianyun intelligent service management platform have opened up the potential market for cloud applications for the company. As an information service enterprise, the company ushered in a development opportunity. In the first half of the year, the company's cloud product implementation projects in overseas markets and overseas projects of Chinese enterprises increased significantly. In the future, with the continuous upgrading and strengthening of the company's cloud transformation, cloud business will become an important profit growth point. In addition, the cooperation between the company and Baidu, Inc. has been carried out in cloud resources, data platform, artificial intelligence, enterprise big data technology, and so on, which has opened up a new direction of intelligent park and energy management this year. At present, there are many business opportunities in intelligent work orders and intelligent contract management. In the second half of the year, the company will continue to deepen cooperation with Baidu, Inc. in product development and business opportunities. Efforts will be made to develop cooperation between enterprises in the fields of China and Taiwan, basic computing resources, artificial intelligence, and so on. Since the full resumption of work and production in May, the order volume of some of the company's business has rebounded. In the future, with the continuous development of new customers in key industries, the further expansion and strengthening of its own products, and strict cost control, the company's performance is expected to return to steady growth.

Investment suggestion: from 2020 to 2022, the company is expected to achieve operating income of 27.17,30.99 and 3.53 billion yuan, net profit of 2.70,3.69 and 428 million yuan, EPS of 0.31,0.42,0.48 yuan respectively, corresponding to PE of 32,23,20X, maintaining the "recommended" rating.

Risk tips: the progress of research and development of independent products such as cloud applications is not as expected; the progress of the cooperation project with Baidu, Inc. is not as expected; the competition in the consulting industry is intensified; and the demand for traditional ERP is further shrinking.