What happened: in the first half of 2022, the company's revenue increased 9% year-on-year to HK $38.07 billion, of which enterprise systems business revenue increased by 4% to HK $20.5 billion, consumer electronics business revenue increased by 15% to HK $16.1 billion, and cloud computing revenue increased by 32% to HK $1.45 billion. Divided by region, the contribution income of Southeast Asia reached 8.38 billion yuan in the first half of the year, an increase of 13% over the same period last year, accounting for 22%. The business performance of Southeast Asia is still relatively strong. The company's net profit in the first half of the year was HK $503 million, down 22.1% from the same period last year, mainly affected by the increase in operating expenses; during the period, ROE was 14.1%, still maintaining a level of more than 10%.
Summary of the report
Consumer electronics business exceeded expectations despite the negative impact of the macroeconomic downturn and the epidemic on consumption, the income of the company's consumer electronics business division increased by 15% in the first half of the year compared with the same period last year. The consumer electronics products represented by the company include smartphones, game consoles, VR/AR, wearable devices, Internet of things devices and so on. The company's offline channels have covered 30 provinces and cities across the country, opening up multiple channels for supply, such as Sam's Club, Box Horse, Metro and Costco, while opening new channels in online channels such as Douyin and Kuaishou Technology. In the first half of the year, the company formally established a cooperative relationship with PICO to provide consumers with richer VR products; at the same time, the company is also the only company in China that integrates Sony Group Corp PS, Microsoft Corp Xbox and Nintendo Switch three major game product distributors to provide momentum for the subsequent growth of consumer electronics business.
Cloud computing business continues to be strong cloud computing business has become the fastest growing sector of the company in recent years, with cloud computing business rising 32 per cent to HK $1.45 billion in the first half of the year compared with the same period last year. According to IDC, China's third-party cloud management service market company ranks fifth, and service revenue growth ranks second compared with the same period last year; in terms of business cooperation, the company joined hands with Aliyun to create a virtual operator platform VPlus to accelerate government-enterprise cooperation under the tide of new infrastructure in China.
Long-term development strategic direction the company strategically focuses on cloud computing business, and will continue to strengthen investment in the field of cloud computing and accelerate business development through a strong channel system; at the same time, the company will build itself into a technology service platform to empower upstream and downstream, continue to improve operational efficiency and reduce costs In addition, ecological construction will be accelerated through investment or mergers and acquisitions in the future, especially in-depth layout around the field of cloud services. Benefiting from the demand of the Internet and communications industry for the cloud computing market, the company's cloud business is expected to enter the fast lane of development, and the structural improvement of profit margins is expected to have a significant effect on the company's performance. At the same time of the structural change of business, as the profit margins of cloud computing business and enterprise services business are significantly higher than those of traditional business, the structural improvement of the company's business is expected to bring leverage benefits to the growth of net profit.
Investment suggestion although the enterprise service business is under short-term pressure due to the epidemic and other factors, thanks to the outstanding performance of the consumer electronics business and the steady growth of the cloud business, the company's future performance growth stability and profit structure are expected to continue to improve.
We estimate that the company's net profit will be HK $1.18 billion and HK $1.26 billion in 2023, down 10.4% and 6.9% respectively from a year earlier. We give the company a target price of HK $8.70 and maintain a "buy" rating according to the 10x price-to-earnings ratio in 2023.
Risk tips: ICT integrated services business competition intensified; overseas business development is lower than expected; cloud computing-related business growth is slower than expected.