Incidents:
The company released its 2017 semi-annual report, achieving operating income of 630 million yuan in the first half of the year, an increase of 19.8% over the previous year; net profit attributable to shareholders of listed companies was 25.86 million yuan, a decrease of 7.29% over the previous year. The performance is in the range of -10% to 10% of the previous forecast, which is basically in line with expectations.
Intense competition in traditional main businesses has dragged down performance growth, and connected ports have also increased performance
Competition in the company's traditional business mobile communication technology service market is still fierce. Among them, network optimization revenue increased 2.17% in the first half of the year, gross margin fell 2.64 percentage points; network construction revenue fell 31.92%, and gross margin increased 1.35 percentage points. Management costs increased by 32.87%, mainly due to the increase in intermediary costs due to the consolidation of interconnected ports and restructuring. Financial expenses increased by 48.82%, and interest on loans increased mainly due to business requirements such as mergers and acquisitions. The company completed a 51% equity acquisition in Connected Port at the end of last year, increasing net profit by about 15.6 million yuan in the first half of this year.
The performance of connected ports is growing rapidly, and hybrid cloud business continues to advance
Connected Port achieved operating revenue of 140 million yuan in the first half of the year, an increase of 100% over the previous year, and achieved net profit of 30.59 million yuan. The net profit for January-July last year was 16.73 million yuan, showing good growth, and it is expected that this year will continue to exceed performance promises. On the IDC side, the company's Beijing Jiuxianqiao Data Center was completed and is expected to complete the full experience in the second half of the year; it is actively expanding its industry business and has already served many financial industry customers, and IDC's business achieved revenue of 116 million yuan in the first half of the year. In terms of cloud computing services, the company is actively cooperating with several major cloud computing vendors in resale and technical service work. It has reached cooperation with AWS and Alibaba Cloud to achieve new applications such as network self-scheduling and cloud computing resource pool load balancing through the SDN network and hybrid cloud unified management platform. Cloud computing services achieved revenue of 18.85 million yuan in the first half of the year, with gross margin reaching 65%.
Plans to acquire remaining shares, and the chairman's increase in holdings shows confidence
The company plans to buy the remaining 49% of the remaining shares in Connected Port at a price of 540 million yuan. After the acquisition is completed, the company's performance will be further enhanced. The cloud computing business will become the company's future business focus. Ren Zhiyuan, founder of Connected Port, is also expected to actively participate in the company's management in the future. The chairman of the board plans to use his own capital to increase the company's shares within the year. The increase ratio is no more than 1% of the share capital, demonstrating confidence in the company's future development.
Maintain the “increase in holdings” rating, with a target price of 10 yuan
We are not considering the impact of the acquisition of remaining shares in Connected Port. We expect the company's 2017-2018 EPS to be 0.25 yuan and 0.31 yuan respectively, and the corresponding PE is 30X/24X respectively. We are optimistic about the cloud service layout of the company's IDC+DCI+SDN+ hybrid cloud, maintaining the “increase in holdings” rating, and the target price is 10 yuan.
Risk warning: The risk that the progress of the acquisition target does not meet expectations, and the risk that new business development falls short of expectations.