Incidents:
The company achieved revenue of 2,080 million yuan in 2019, a year-on-year decrease of 13.83%; deducted non-net profit of 131 million yuan, an increase of 6.75% over the previous year. The company achieved operating income of 526 million yuan in the first quarter of '20, a year-on-year decrease of 5.92%; after deducting non-net profit of 52 million yuan, a year-on-year decrease of 8.70%.
The urban brain strategy is progressing in an orderly manner, and the level of profit continues to rise
The company's urban brain strategy is progressing in an orderly manner: 1) it has signed agreements with public security systems in many places to provide traffic signal optimization services; 2) the Shenyang Regional Population Health Information Platform was put into operation at the end of December 2019; 3) Zhenjie Brain has been applied and promoted in Hangzhou. Although revenue declined in the first quarter of 2020 due to the failure to confirm revenue from some major projects in 2019 and the phased impact of the epidemic, the company's new strategy has led to a continuous increase in profit levels in recent years. Net interest rates in 17-19 were 4.11%, 5.10%, and 6.32% respectively, achieving three consecutive years of growth.
Business and cash flow guarantees help companies transition during the pandemic
The company's business actively helps “fight the epidemic”. The company served the informatization and intelligent construction of the Dabieshan Regional Medical Center, involving a contract amount of about 50 million yuan; the AI traffic management big data platform helped many cities investigate vehicles in Hubei; at the same time, the Shenyang Regional Population Health Management Platform and Sandun Town Street Data Brain also played an important role. Furthermore, the company obtained sufficient working capital through daily operations and equity financing, which greatly enhanced its resilience to risks during the pandemic.
Equity financing strengthens core competitiveness, and technology upgrades benefit the main business. In February 2020, the company plans to issue shares privately to support project construction: 1) The company will upgrade the overall “urban brain” solution and improve the underlying framework of the main business under the new strategy; 2) The company has replicated and promoted traffic management services in many places, which is expected to generate good operating service revenue. In the future, it will further cultivate comprehensive traffic management business by improving the AI technology system; 3) Accelerate the integration of the Internet of Things with next-generation 5G/WiFi communication technology to rapidly promote the field of smart wards, smart management and traceability Further expand healthcare IoT business with products such as 5G+ remote consultation.
Profit forecasts and investment advice
Considering the company's continuous increase in smart healthcare and smart transportation, we believe that the company's net profit for 2020-2022 was 202 million, 290 million, and 344 million yuan respectively. The corresponding EPS for the 2020-2022 EPS was 0.31, 0.44 and 0.53 yuan respectively, and the corresponding PE was 30.8, 21.5 and 18.1 times respectively, giving it a “buy” rating.
Risk warning: Risk of macroeconomic fluctuations; industry development falls short of expectations.
