Purpose of the report

Recently, we conducted research on Tianyu Information (300205) to understand the current development status and future plans of the company's smart card, terminal, mobile phone security, smart education and other businesses.

Key Views

1. The company's traditional smart card business is still under pressure. There was a clear decline in the number of financial IC cards issued. The number of cards issued in Q1 2017 dropped by 15%-20%, and prices fell slightly. Benefiting from the obvious effect of cost reduction, gross margin rebounded year-on-year. The price of communication cards dropped significantly, falling 20%-30% year on year. The gross margin of overseas markets was several times that of domestic ones. In the future, the focus will be on overseas markets.

2. The company's terminal business is doing well. Sales of mPOS, credit cards, etc. increased significantly, with a gross profit margin of 15%-20%, using existing channels to release performance. The peak of “business reform and growth” in the tax control market has passed. Sales have declined year over year. The company has promoted value-added services, and the number of taxpayers served and service business revenue have increased dramatically year over year.

3. Smart education is the company's core strategic business. Future development strategy: (1) expand the coverage area of the education cloud platform from top to bottom using national, provincial, municipal, and county education cloud platforms as entry points to occupy the market free or at low prices; (2) expand channels, develop channels through mergers and acquisitions of small information technology companies and development agents with resources at the provincial and municipal levels, and cooperate with local companies with resources to establish joint ventures and holdings to strengthen the establishment of product sales channels from the bureau to school; (3) the entire product, the company changed its thinking in 2015 to develop application products. More complete wisdom The education product system includes education cloud platform, smart teaching, smart learning, smart evaluation, smart training, smart management, and smart campus. In the future, we will further cooperate with education authorities, resource application providers, terminal providers, smart education product and operation service providers, etc. to improve the product matrix; (4) major projects to seize opportunities for major projects such as regional PPP education informatization projects, new schools, and model schools.

Q&A

1. Company business composition

It is divided into traditional business and strategic business. Traditional businesses mainly include data security services such as financial IC cards, communication cards, tax control boards, terminals, and mobile phone security. The parent company is doing it, and gross margin is gradually rising, making steady progress; the strategic business is a software-based education informatization business, which Tianyu Education is responsible for, and wants to transform into services in the future.

2. The company's education business situation

As a strategic business, education is handled personally by the chairman of the board, and is a top priority in the company's development. Education has great prospects, and there are many market participants. The company started from a cloud platform. Due to the limited number of cloud platforms and low profits, it changed product ideas and developed application products in September 2015. The products developed for schools include smart education, smart evaluation, examinations, campus management, class scheduling systems, etc., with a complete product range.

3. Ideas for expanding the company's education business

The company relies on cloud platforms to occupy provincial, municipal, and county markets, advancing from top to bottom to schools, and has been selling to schools one after another since April 2016. The company's market development was quite aggressive last year. In order to seize the platform market, platforms entered schools free of charge. In 2017, the company will continue its platform development strategy to occupy the market at low prices or free of charge.

4. Current sales situation of education products and coping strategies

The market for education information technology products is large, and the investment of schools is not small. A school can invest more than 200,000 to 1 million. At present, the company's sales volume has not yet reached scale, and it is in the stage of actively expanding channels. This is the focus of this year's work. The company plans to continuously strengthen channels and increase sales levels through mergers and acquisitions of small information technology companies with resources and development agents at the provincial and municipal levels. At the same time, through continuous product upgrades and iteration, product lines have been improved, and market opportunities for newly built schools have been seized.

5. Employee management situation in education business

There are about 200 R&D personnel in the company's education business, and there are about 300 people responsible for integrating curriculum resources (including part-time workers). The remuneration of R&D personnel is high, and the average salary is over 10,000, so the fixed expenses of the education business are high. Tianyu Education provided incentives to management, introduced external investors to bring in new resources, and expressed optimism about equity through external financing to boost employee morale and achieve a motivating effect.

6. Development of the education informatization business market

The company's education information technology products are mainly aimed at public schools, and they do both hardware and software. The government bids once, and the frequency of updates is 3-4 years, and schools invest more than 1 million dollars at a time. The company currently covers more than 60,000 schools in Hubei, Liaoning, Jilin, Sichuan, Ningxia, etc. The Ningxia project gave K12 education informatization to the company. Other participants included iFLYTEK and Lisichen of HKUST. For expansion outside of the province, the company cooperates with local companies that have resources to establish joint ventures. The other party can get in touch with school-level institutions. The company will hold the joint venture company, and at the same time, the company will explore the market by recruiting agents.

7. Financial IC card business situation

The company's main customers are large banks, of which 2012-2013 was ICBC's largest supplier. Beginning in 2016, the peak period for financial IC cards has passed. The number of cards issued in the entire market has declined, and prices have declined at the same time, but the number of cards issued by urban commercial banks and cooperatives is still rising. In 2017 Q1, the number of cards issued by companies fell 15%-20%, and card prices fell slightly. Prices are expected to stabilize. The company optimized production through procurement and cost management, and the gross margin of card issuance increased slightly. Among them, chip prices are relatively stable, and supply is mainly from overseas, and the domestic market is rising. The company expects that the number of cards issued will decline in the first half of 2017, and that the number of cards issued will stabilize in the second half of 2017.

8. Communication card business situation

The business company ranked high in the industry overall. As the price of communication cards fell by 20%-30%, the price of a communication card was less than 1 yuan, which led to a decline in revenue in Q1 of 2017, which was only tens of millions. Prices in overseas markets have also declined, but the decline was not significant. Since gross margin is several times that of the domestic market, it has become the focus of the company's development. Overseas markets were good in the second half of 2016, and it is expected that overseas markets will perform well in the next few quarters. The future focus of communication cards is the Internet of Things, which will develop and expand through core applications targeting the C-side. In the past few years, the company has had a sales layout in the field of connected cars. The products supplied to the Internet of Vehicles are relatively more expensive than mobile phones. As the cost gets lower and lower, they will become more and more popular in the future.

9. Tax control board business situation

The business model of this business is clear, the gross profit is high, the gross profit of the tax control board is over 50%, and the size of the company has stabilized. Among them, due to the full launch of products in 2016/5, the inventory volume in 2016/Q1 was very high, and the 2017 Q1 gradually stabilized. Currently, the company has begun to provide value-added services for taxpayers, such as tax-related software. It is divided into two parts. One is free services related to invoicing, and the other is fee-paying services related to technical services. At present, the business has expanded to Hubei, Heilongjiang, Hunan, Guizhou, Sichuan and other places. The company also built a new call center in 2016, which is already profitable.

10. Terminal business situation

Credit card sales are growing rapidly, with sales exceeding 200 million last year. mPOS is the company's emerging business. Since channels have been established and sales performance is excellent, sales were strong in Q1 2017, with a gross margin of 15%-20%. The products are mainly sold to third party payment companies, and the other party is responsible for delivering the goods.

11. Mobile phone security business situation

I feel that mobile phone manufacturers are not paying attention to TEE this year. Technically, it can be applied to many fields, mainly information recognition (identity recognition) can be used, but the scale cannot be increased. The company is seeking further cooperation with Qualcomm in the field of security... It's harder to get a license for Qingdong's online payment.