The performance of Zhongxin Sike 3Q21 is in line with our expectations.
Zhongxin Secco released its results for the first three quarters of 2021: revenue was 520 million yuan, down 16.73% from the same period last year, and its net loss was 69.69 million yuan, down 148.51% from the same period last year. In a single quarter, the company's 3Q21 revenue reached 180 million yuan, down 37.84% from the same period last year, and its net loss was 25.36 million yuan, down 133.54% from the same period last year. The performance is in line with our expectations.
Development trend
The business continues to transform and the pace of investment increases. The company actively promotes business transformation and product innovation. At the product level, it permeates from the front-end network visualization business to the back-end big data operation and network content security products. At the same time, increase R & D investment in superior business to maintain the lead in product strength and technology; at the customer level, the company closely follows the tide of enterprise digital transformation, and increases R & D and market investment on the government and enterprise customer side. Taken together, excluding the impact of equity incentive costs in the first three quarters, the company's overall period expenses increased by about 20% compared with the same period last year. In terms of gross profit margin, the company's gross profit margin in the first three quarters was 70.5%, down 7.0 ppt from the same period last year; in terms of expense rate, the sales / R & D / management expense rate in the first three quarters was 34.2%, 43.1% and 11.9%, respectively, which increased 13.2/16.1/3.3ppt over the same period last year. According to the company's announcement, the increase in sales expense rate is mainly due to the increase in marketing staff compensation and equity incentive costs by 35% and 157% respectively over the same period last year, while the increase in R & D expense rate is mainly due to the increase in R & D personnel compensation and equity incentive costs by 21% and 111% respectively over the same period last year.
The severe epidemic situation abroad has led to a decline in the company's overseas revenue. Due to the severe overseas epidemic situation, the construction cycle of the company's front-end network and back-end big data products has been affected, the signing and execution of relevant orders have been delayed, and overseas revenue has declined compared with the same period last year. In addition, we expect to be trapped in the short-term 4G, 5G replacement cycle, the company's front-end broadband business may continue to be under pressure.
The net profit of home ownership has declined a lot, which is mainly affected by the cost of equity incentive. The cost of equity incentive in the first three quarters of the company is about 80 million yuan, while that of 3Q21 is about 22 million yuan. Excluding the sharing of incentive costs, the net profit attributed to shareholders of listed companies in the first three quarters was 9.0959 million yuan, down 93.67% from the same period last year.
Profit forecast and valuation
As the company's business is in the stage of transformation, it is under short-term pressure. We reduced the 2021 Universe's operating income by 6.73% in 2022 to 1.49 billion yuan in the year, and reduced the 22-year net profit of the company in the same year by 5.06% to 1.46% to 416 million yuan in the year 306. The net return to the parent of the company will be reduced by 1.46% to 416 million yuan. The current share price corresponds to a price-to-earnings ratio of 17.3 / 12.7 times 2022. Due to the weak market sentiment, it maintained the outperformance of the industry rating and lowered the target price of 53.0 yuan by 25.8% to 39.3 yuan, corresponding to 23.3 times 2022 / 17.1 times earnings, which is 30% higher than the current stock price.
Risk
Back-end product growth is not as expected; the impact of project acceptance cycle fluctuations; government and enterprise customer expansion is not as expected.