Main points of investment:
The company announces its results in 2019. In 2019, the company achieved revenue of HK $2.9 billion, an increase of 18.6% over the same period last year; net profit of HK $200 million, down 37.3%; and basic profit per share of HK17.8 cents, down 38.7% from the same period last year.
The rate of administrative expenses has improved, and investment in cloud R & D has increased significantly. In 2019, the company's gross profit margin decreased by 35.7% compared with the same period last year, which was mainly due to the increase in the business share of the Internet of things solutions with low gross profit margin; HK $470 million in sales expenses, with a sales expense rate of 16.2% 10.5%/-5.0pct; HK $300 million in administrative expenses and a rate of administrative expenses 10.5%/-5.0pct, mainly due to strict control of functional expenses and improvement of management efficiency The R & D expenditure is HK $240 million, and the R & D expenditure rate 8.4%/+2.1pct is mainly due to the active increase in R & D investment in cloud services. In addition, the investment income from the associated company was 40 million Hong Kong dollars, down 78% from the same period last year, affecting profits, mainly due to the sharp decline in the net profit of the associated company in the current period.
From a business perspective: in 2019, the company's revenue from management software was HK $1.97 billion, up 2.4% over the same period last year; revenue from cloud services was HK $390 million, up 109.6%, accounting for 13.4% of revenue; and revenue from Internet of things solutions was HK $540 million, an increase of 61.3% over the same period last year.
The cloud services business is growing rapidly. In 2019, cloud service business achieved rapid growth, an increase of 109.6% over the same period last year, making a further breakthrough in transformation. 1) large enterprise market, continue to optimize GS Cloud, release the first domestic enterprise digital capability platform wave iGIX. The company is the first in the industry to integrate the SaaS platform and release HCMCloud3.0. Sign contracts for large enterprises such as China Construction Civil Engineering and the fourth Bureau of China Construction. At the same time, the company also has excellent performance in financial management cloud, purchasing cloud, cloud + and other products. 2) in the growth enterprise market, the company launched a new generation of open source cloud ERP product PS Cloud v2.5 to help growing enterprises achieve financial and business process integration and intelligence, and launched the human resources SaaS product-HCM Cloud SE in March 2020. 3) small and micro enterprise market, complete the release of wave cloud accounting industry special edition and store version, and provide one-stop smart ticket finance and taxation financial service solution for small and micro enterprises.
Plan 2020: cloud transformation continues to accelerate. In 2020, the company will continue to increase investment in cloud ERP research and development to accelerate cloud transformation. At the same time, relying on the industrial layout and brand influence of the parent company Tide Group, we will create new technologies, new applications and new models to help the construction of enterprises.
Profit forecast and investment advice. We estimate that the company's return net profit from 2020 to 2022 will be HK $2.37,3.18 and HK $427 million respectively, an increase of 16.6%, 34.5% and 34.0% respectively over the same period last year, and the corresponding EPS will be HK $0.21,0.28 and HK $0.37 per share respectively. We will give the company 16-18 times PE in 2020, corresponding to a reasonable value range of HK $3.36-3.78 per share, which will remain superior to the market rating.
Risk tips: the risk of macroeconomic downturn; cloud services business development is not as expected; market competition intensifies.