Guide to this report:
The company's 2019 semi-annual results are under pressure. The operation and maintenance business has reached an inflection point in the cycle and is expected to bottom out and pick up. At the same time, consumer finance is driving demand for financial service outsourcing business to rise. The two factors are compounded, and a rebound in the company's performance can be expected.
Investment points:
Maintaining the “increase in holdings” rating, the target price of 17.93 yuan remained unchanged. The company achieved revenue of 1,623 million yuan in the first half of 2019, an increase of 18.14% over the previous year, and net profit of 26 million yuan, a year-on-year decrease of 23.92%. The decline in net profit is mainly due to a sharp increase in the tariff level of telecom value-added business channels, which has lowered the level of gross profit margin of the business. Considering that 5G commercial use is speeding up, the company's operation and maintenance business has bottomed out and rebounded, and financial service outsourcing is gradually increasing, we believe that the company's performance can be expected to rebound.
We predict that the company's EPS in 2019-2021 will be 0.61, 0.74, and 0.88 yuan, giving the company 30 times the valuation in 2019, corresponding to a target price of 17.93 yuan, maintaining the “increase in holdings” rating.
The corporate SMS business is under pressure to find new ways to transform: Affected by the increase in operator channel tariffs, the subsidiary Genesis Mandao experienced a 25.11% increase in revenue while costs increased by 47.03%, lowering the level of business gross profit. On the one hand, the company's revenue growth surpassed the overall level of the industry, showing strong competitiveness. On the other hand, pressure on the cost side prompted the company to actively explore new ways out. At present, the company is focusing on strengthening cost control and has achieved remarkable results. The management fee for Mandao has been reduced by 23.13% year-on-year during the period. At the same time, the company is exploring new ways in the multimedia SMS business and is expected to achieve a breakthrough in effectiveness.
The operation and maintenance business is already at an inflection point in the cycle, and the beginning of financial service outsourcing can be expected: 5G commercial use is beginning, and the operator business is at an inflection point in the cycle. It is expected that with the acceleration of 5G construction, demand for operation and maintenance will rebound sharply. The subsidiary Changshi Communications will directly benefit as a leading enterprise in the operation and maintenance industry. Emerging financial industries such as consumer finance are growing rapidly, driving an increase in demand for financial service outsourcing. The subsidiary Jiahua Information is in a leading position in the industry. Relying on abundant customer resources, its performance is expected to grow rapidly.
Catalysts: 5G commercial use is accelerating; the financial outsourcing service market is developing rapidly.
Risk warning: Competition in the corporate SMS market is intensifying; 5G construction falls short of expectations.