Changjietong released its unaudited first-quarter report for fiscal year 20, during which cloud revenue continued to grow, but its software business was affected by the COVID-19 epidemic.

The company's management issued guidelines that expect revenue to grow by 20-30% year-on-year in 2020, which means a strong recovery for the rest of the year.

The company's first quarterly report for fiscal 20 once again confirms our view that cloud services will outperform non-cloud software businesses.

We believe that the policy of full circulation of H shares is beneficial to Changjietong. Taking into account the gem relaxation of the listing threshold, the company now has another option.

Summary of results for the first quarter of FY20

Changjietong's operating revenue in the first quarter of fiscal year 20 was 90.4 million yuan, down 31.2 percent from 131.4 million yuan in the first quarter of 19. The decline in revenue was mainly due to a 48% year-on-year drop in software revenue. But the cloud services business grew 80% year-on-year in the first quarter of FY20. During the period, the company made a net profit of 19 million yuan, down 62.2 percent from 50.34 million yuan in the first quarter of 1919. The reason that the year-on-year decline in net profit was greater than the decline in revenue was due to a sharp decline in the high-margin software business. Chunjietong's management also mentioned that losses in the cloud business were narrowing compared with the same period a year earlier, but did not mention specific figures. The company's total assets in the first quarter of fiscal year 20 were 1.603 billion yuan, an increase of 1.5% over the same period last year.

Software business affected by COVID-19 epidemic

Affected by the COVID-19 epidemic, the "Financial Popularization Storm", a large-scale marketing activity carried out by the software department of Changjietong in the first quarter of each year, failed to carry out as planned due to delays in the resumption of work by channel partners and end markets, resulting in a large year-on-year decline in software business revenue.

Rapid growth of cloud servic

Revenue from the cloud services business grew by more than 80 per cent year-on-year to about 32 million yuan in the first quarter of FY20. The cumulative number of paid enterprise users in cloud services has reached 170000. Smooth Jietong accelerated the launch and improvement of new cloud service products such as Changjietong good Business Prosperity Edition and Zhi +, and assisted small and micro enterprises to achieve online business, customer and office online during the COVID-19 epidemic, and helped small and micro enterprises to speed up the resumption of work and production. Smooth and smooth accounting has updated smart tax forms, settlement and other functions to help small and micro enterprises enjoy various policies of the state to support epidemic prevention and control, and help enterprises return to work and production.

The FY20 guidance means that management with a smooth recovery will issue guidelines for the rest of the year, and revenue in fiscal 2020 is expected to grow by 20-30% year-on-year, which means a strong recovery for the rest of the year. Revenue from the cloud services business is expected to grow by more than 60% year-on-year. Management mentioned that the company saw a good trend in resuming work and internal data.

Listing of domestic shares can enhance liquidity

We reiterate that the market may be concerned about Chunjietong, which has a small market capitalization and low trading volume. The policy of full circulation of H-shares is good for Changjietong, because if the detailed rules are ready, the company can seek the listing of its domestic shares. As the mainland government has relaxed the threshold for listing on the gem, the company still has one more option. Management said the company's largest shareholder, UFO Software Co., Ltd. (600588.CH), is unlikely to reduce its stake in Changjietong because Changjietong is undervalued.