The company focuses on the field of public security information. Since its establishment in 2007, China Science and Technology Tongda has been focusing on the field of public security information, and is committed to providing public security management information system design, development, construction and follow-up operation and maintenance services for public security departments through big data, cloud computing and other information means. The end customer of the company is the public security organ, adopting the project charging model, and its revenue has increased significantly in recent years, from 159 million yuan in 2017 to 496 million yuan in 2020, with a compound growth rate of 46%. The company's revenue mainly comes from central China (which accounted for 87% of revenue in 2020), and the growth rate of operating income decreased significantly due to the COVID-19 epidemic in 2020. In terms of gross profit margin, due to the company's strengthening market expansion, new customers undertake some projects with low gross profit margin and other factors. From 2018 to 2020, the gross profit margin was 31.84%, 29.97% and 26.54% respectively, showing a certain downward trend.
Public safety has been paid attention to, and the construction of public security informatization has been continuously promoted. China continues to increase investment in the field of public security. From 2014 to 2019, China's fiscal public security expenditure increased from 835.7 billion yuan to 1.3902 trillion yuan, with an average annual compound growth rate of 10.71%, accounting for about 6% of fiscal expenditure.
At the same time, the construction of public security informatization continued to advance, and the scale of the industry increased from 41.05 billion yuan in 2014 to 82 billion yuan, with an average annual compound growth rate of 14.8%. The customers of the public safety information service industry are mainly regional public security organs, with obvious regional characteristics; at the same time, there are a large number of enterprises in the industry, and the overall market concentration is low. At present, Yihualu, Yinjiang shares, Lion Technology and other listed companies are large-scale enterprises in the industry, Hengfeng Information, Internet Technology, Fiberfire Zhong Zhi and the company also have strong market competitiveness in various regions.
Raising funds will focus on strengthening R & D and service capacity. The company is accelerating its development, issuing 29.0934 million shares of the company and raising 250 million yuan. The funds raised will focus on projects such as the upgrading of public safety management information service systems and R & D centers, which will help to enhance the company's R & D capabilities and service capabilities.
Profit forecast and valuation. With the steady growth of the public security information industry, the company's domestic industrial software has a huge development prospect. The company is a leading R & D and design industrial software supplier in China. It is expected that the company will be accelerated by capital support after listing. We expect the company's operating income to grow by 43.3%, 38.4% and 34.1% respectively from 2021 to 2023, and its net profit to grow by 37.6%, 34.5% and 32% respectively, and its EPS is expected to be 0.66,0.88 and 1.16 yuan respectively. In terms of valuation, with reference to A-share listed companies Yihualu and Yinjiang shares, we give the company 20 times PE in 2021, corresponding to a target price of about 13.2 yuan per share.
Risk hints: there is uncertainty in the promotion process of fund-raising projects, intensified competition in the industry, and uncertainty in the needs of downstream customers.
