Company profile
Eden Software Holdings is a comprehensive IT solutions and cloud service provider in China, providing IT infrastructure services, IT implementation and support services, and cloud services to enterprise customers. The company was one of Microsoft's authorized dealers in China in the early years, and was also an authorized agent for software companies such as IBM, Oracle, Symantec, Citrix, Adobe, and McAfee. The company was listed on the New Third Board in 2016 and delisted in 2018. The share of revenue from Shenzhen in Guangdong Province in 2019 was 71.1%, and the share of revenue from outside of Shenzhen has increased year by year in the past three years.
Sino-Thai views
The scale of China's IT service industry continues to expand: According to the Frost & Sullivan report, the market size of the IT service industry is expected to expand at a compound annual growth rate of 16.0% from 2019 to 2023 to 10859.1 billion yuan due to China's industrial and economic transformation. As the main part of the IT service industry, the IT solution service market is expected to increase to 10558.3 billion yuan in 2023 at a compound annual growth rate of 15.8% over the next five years, driven by growing service demand and investment. China's cloud services market is also driven by the continuous maturity of cloud computing and the deepening development of various technology reserves. It is expected to grow at a compound annual growth rate of 25.2% from 2019 to 2023 to 96.3 billion yuan.
In terms of operating performance: The company's earnings and gross profit increased continuously from 2016 to 2019, but the gross margin remained between 10-13% for four consecutive years. Among them, the lowest gross margin in 2019 was 10.5%, due to a decrease in gross margin on orders from major customers or an increase in the proportion of customers or projects with lower gross margins. Net profit in 2019 fell nearly 10% year-on-year to 245.48 million yuan. From 2016 to 2019, revenue from the five major customers accounted for about 57.3%, 63.1%, 59.4%, and 58.7% of total revenue, respectively. In the four years ending December 31, 2019, purchases of products and services from a major supplier accounted for approximately 29.7%, 37.2%, 36.4%, and 32.7% of total purchases, respectively. In the past four years, revenue from one major customer accounted for about 42.8%, 49.6%, 42.3%, and 40.4% of the company's total revenue, and reliance on major customers declined. The revenue share of the three major businesses in 2019 was 50.7%, 17.9% and 31.4% respectively. Among them, IT infrastructure service revenue accounted for the largest share, and cloud service revenue increased.
In terms of valuation: Based on the global share capital of 2 billion after the public sale, the company's market value is HK$500 million, which is lower than the Hong Kong stock market average. The price-earnings ratio of the company in 2019 was 18.2 times, higher than the industry average; the net market ratio was 2.50 times higher than the industry average. In terms of profitability, ROE and ROA in 2019 were 25.5% and 11.9% respectively, both higher than the industry average. The sponsor's 19-year historical track record 2 has risen 4 times. Considering that the IT service industry is highly fragmented and competition is fierce, the company's dependence on large customers is high, and the net interest rate has declined in the past three years. Based on the company's industry status, performance and valuation level, we gave it 57 points. The rating was “no subscription”.
Risk warning: (1) the risk of market competition; (2) excessive reliance on a single customer and supplier, the risk fluctuates greatly