The performance was in line with expectations, and net operating cash flow increased significantly. The company achieved revenue of 3,558 million yuan in 2018, an increase of 9.36% over the previous year; net profit of 177 million yuan, a decrease of 41.76% over the previous year; after deducting non-net profit of 87 million yuan, an increase of 5.42% over the previous year; net cash flow from operating activities was 4.3 million yuan, an increase of 796.9% over the previous year.
Huatong Cloud's data performance fell short of promises, releasing some risk of impairment of goodwill. Huatong Cloud Data achieved net profit of 107 million yuan in 2018, the difference with performance promises was 91 million yuan, and the company calculated related goodwill impairment preparations of 507.0694 million yuan. The main reasons why the completion of Huatong's cloud data business did not meet expectations were: 1) IDC's business segment. The launch of the Alibaba Customized Computer Room Qiandaohu Phase II computer room came later than expected, and the IDC hosting business failed to achieve the expected gross profit; 2) the Internet resource service sector. Due to the influence of policies to speed up and reduce fees in the radio and television industry, radio and television operators around the world have successively reduced costs and increased their own resources. At the same time, due to direct cooperation between CP and customers, although Huatong Cloud Data has strengthened its marketing efforts, the Internet resource business price has declined slightly, and the growth rate of resource traffic has also declined, so the Internet resource business has not achieved the expected gross profit; 3) In the information technology service business sector, the business situation of some customers is not ideal.
Follow the progress of distributed AI platform business. With the deep technical accumulation of the Zhejiang University Network-Zhejiang University Artificial Intelligence Joint Research Center and the support of Huatong Cloud Data's strong cloud infrastructure, the company will build an AI system integrating distributed AI training and distributed AI execution based on ARM's new hardware platform and GAN computing, and expand into cloud application fields such as secure clouds, integrated media clouds, big data clouds, and temperature data clouds. At present, the platform has begun to take shape. In 2019, the company's distributed AI platform will use image recognition as a starting point to create new application scenarios, promote the cloud-based and artificial intelligence of various businesses, and provide artificial intelligence computing services close to applications and terminals, which is worth looking forward to.
Investment advice: The company's business restructuring and asset integration have begun to bear fruit. Innovative businesses represented by distributed AI are growing at an accelerated pace, and the company's overall performance is expected to grow steadily in the future. The company's EPS is expected to be 0.25 and 0.33 yuan in 2019 and 2020, increase its holdings with a -A rating, and a target price of 13 yuan for 6 months.
Risk warning: There is a risk of impairment of goodwill, and increased competition in the industry will lead to a decrease in gross margin.