Chinasoft International (0354 HK)

Transcription

1 Equity Research Tech, Media & Telecom 11 Jun 2014 Chinasoft International (0354 HK) SaaS initiative in cloud business Advancing in SaaS cloud with government and corporates demand: Following exclusive agreement with Aliyun in PaaS universe since 2012, Chinasoft is making progress in SaaS business. Working with Aliyun and local partners, with a leading role Chinasoft provides specific system solutions to regional government and corporate. A contract could take 3 years at tens of millions RMB, from implementation to maintenance. Leveraging on proprietary middleware, we believe Chinasoft SaaS is likely an upgraded version of traditional industry solutions. Professional service group may recognize annual double-digit growth in next years. Outsourcing business to achieve strong growth esp. with Huawei: According to the management, outsourcing income from Huawei and Microsoft are set to rebound in 2014E. Outsourcing revenue from Huawei is expected to see resume higher growth up to 30% at the 3 rd year of JV formation, in our view. With deeper cooperation with Microsoft especially after acquiring Catapult Systems, management targets to eventually double income size from Microsoft in 2017E. Accumulate (unchanged) Target price: HK$2.74 (HK$2.74) Share price: HK$2.34 Bloomberg Ticker: 354 HK Reuters: 354.HK Key change Core NP (RMBm) New est. Prev est. 2014E E E Continue to stick to cost-control to stabilize margin in 2014E: With operating cost pressure especially on wages, management targets to take jobs at better price from 2014E onwards to at least stabilize profit margin. At the same time, through crowd-sourcing platform JointForce, Chinasoft expects to achieve non-linear revenue growth and improve staff efficiency. 2014E margin could stay at 2013A level. Maintain Accumulate rating; Target price unadjusted at HK$2.74: According to previous interims, Chinasoft is to recognize 40%-45% income and profit in 1H. As for full year, our net profit estimation was slightly adjusted to RMB206.2m and RMB230.1m for 2014E and 2015E. Based on TP at HK$2.74, the counter is trading at 19.3x and 17.3x P/E for the 2 years, or 1.0x and 0.8x P/S respectively. Maintain Accumulate. RMBm (Yr-end Dec) 2014E 2015E 2016E Revenue 4, , ,704.2 % of growth 28.1% 18.7% 17.1% Core earnings % of growth 16.0% 11.6% 14.2% Core EPS (HK$) % of growth 16.0% 11.6% 14.2% P/E (x) P/S (x) Dividend Yield 0.0% 0.0% 0.0% ROE 7.6% 7.6% 7.8% Kevin Mak, CFA Analyst kevin.mak@dfzq.com.hk

2 Table 1. Quick valuation matrix at current price and target price 2014E 2015E Current price (HK$2.34) P/E 16.5x 14.7x 12.9x P/B 1.3x 1.1x 1.0x P/S 0.8x 0.7x 0.6x EV/EBITDA 10.9x 9.3x Target price (HK$2.74) P/E 19.3x 17.3x 15.1x P/B 1.5x 1.3x 1.2x P/S 1.0x 0.8x 0.7x EV/EBITDA 12.3x 10.5x 8.6x Table 2. Quick historical interim figures summary Yr-end Dec (RMBm) 1H 12A 2H 12A 1H 13A 2H 13A Turnover 1, , , ,834.3 Cost of sales (812.8) (1,040.0) (964.4) (1,236.4) Gross profit SG&A-before depreciation & amortization (237.1) (388.8) (289.1) (398.1) EBITDA Depreciation and amortization (45.2) (44.3) (50.5) (51.8) EBIT Other income and net gains 4.2 (16.3) 18.6 (29.3) Tax expenses (17.1) (20.5) (5.5) 0.6 Net profit MI Revenue contribution in the year 42.4% 57.6% 42.8% 57.2% Net profit contribution in the year 44.8% 55.2% 48.8% 51.2% Table 3. Revenue breakdown 2010A to 2013A, 2014E to 2016E RMBm 2011A 2012A 2013A 2014E 2015E 2016E Total revenue 2, , , , , ,200.2 PSG-equipment PSG-service , , , , ,293.2 OSG , , , , ,672.7 Training Overall gross margin 32.5% 33.1% 31.4% 31.2% 31.0% 30.8% 2 / 7

3 Table 4. Profit and loss summary Year-end Dec (RMBm) 2011A 2012A 2013A 2014E 2015E 2016E Professional services business 1, , , , , ,418.2 Outsourcing business , , , , ,672.7 Cloud migration and services Training Turnover 2, , , , , ,704.2 Cost of sales (1,514.3) (1,852.8) (2,200.8) (2,826.4) (3,362.9) (3,945.5) Gross profit , , , ,758.7 Selling and marketing expenses (148.7) (160.7) (175.4) (225.8) (268.0) (313.7) Administrative expenses (309.3) (454.8) (512.2) (626.1) (743.0) (855.6) Research and development costs (46.0) (57.1) (52.2) (65.7) (78.0) (91.3) Amortization of intangible assets & prepaid lease (47.5) (43.0) (49.8) (60.9) (70.0) (79.6) EBIT Depreciation (39.0) (46.6) (52.6) (55.2) (57.9) (60.8) Amortization (47.5) (43.0) (49.8) (60.9) (70.0) (79.6) EBITDA Finance costs - net (23.9) (31.1) (47.3) (49.7) (44.9) (45.3) Share of results of associates (1.1) Adjustment items (40.0) (38.3) (24.1) Allowance for doubtful debts (17.4) (15.8) (24.6) Gain on disposal of associates Impairment loss of goodwill (69.0) (28.1) Gain arising from fair value in related to acquisition Loss on fair value change of redeemable convertibles (37.3) Loss on deemed disposal (0.1) Net foreign exchange gain Government grants Other income, gains and losses EBT Income tax (29.6) (37.6) (4.9) (30.1) (44.4) (63.5) Total profit Net profit Minority interest Adjustment items (40.0) (38.3) (24.1) Share option expenses (24.9) (11.5) (5.4) Adjusted net profit Reported EPS (RMB) DPS (HK$) / 7

4 Table 5. Balance sheet summary Year-end Dec (RMBm) 2011A 2012A 2013A 2014E 2015E 2016E Non-current assets 1, , , , , ,006.8 Property, plant and equipment Intangible assets Goodwill Interest in associates Available-for-sale financial assets Prepaid lease payments Prepayment for knowhow acquisition Deposits paid for investment in associate Derivative financial instruments Deferred tax assets Current assets 1, , , , , ,940.7 Inventories Trade and other receivables , , , , Prepaid income tax Amounts due from associates Amounts due from customers for contract , , Amounts due from related companies Pledged bank deposits Cash and cash equivalents , , Non-current liabilities Deferred tax liabilities Consideration payable on acquisition Redeemable convertible preferred shares Convertible loan notes Borrowings Current liabilities , , , , Amounts due to customers for contract Trade and other payables , Bills payables Amounts due to related companies Dividend payable to shareholders Taxation payable Borrowings Consideration payable on acquisition Convertible loan notes Total equity 1, , , , , ,803.7 Share capital Share premium 1, , , , , ,392.7 Other reserves MI / 7

5 Table 6. Shareholders Shareholding Hony Capital (Zhao John Huan) 18.10% Chairman & CEO Chen Yuhong 9.24% Far East Holdings International (0036 HK) 6.12% Microsoft 5.25% Others and public 61.29% Total % 5 / 7

6 Analyst Certification I, Kevin Mak (Mak Tsz Hang), being the person primarily responsible for the content of this research report, in whole or in part, hereby certify that: (1) all of the views expressed in this report accurately reflect my personal view about the subject company(ies) and its (or their) securities; (2) no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report, or our Investment Banking Department; (3) I am not, directly or indirectly, supervised by or reporting to our Investment Banking Department; (4) the subject company(ies) do(es) not fall into the restriction of the quiet period as defined in paragraph 16.5(g) of SFC Code of Conduct; (5) I and my associates do not deal in or trade in the stock(s) covered in this report within 30 calendar days prior to the date of issue of the report; (6) I and my associates do not serve as an officer(s) of the listed company(ies) covered in this report; and (7) I and my associates have no financial interests in relation to the listed company (ies) covered in this report. Meanings of Orient Securities Ratings Buy Describes stocks that we expect to provide a total return of >10% within a 12-month period. Accumulate Describes stocks that we expect to provide a total return of >0% within a 12-month period. Hold Describes stocks that we expect to provide a total return of between -20% and +20% within a 12-month period. Sell Describes stocks that we expect to provide a total return of <0% within a 12-month period. Disclosure & Disclaimer Orient Securities (Hong Kong) Limited does and seeks to do business with the company or companies covered in this report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Orient Securities (Hong Kong) Limited and its affiliates, officers, directors, and employees may from time to time have long or short positions in securities, warrants, futures, options, derivatives or other financial instruments referred to in this report. In no event will Orient Securities (Hong Kong) Limited or any other member of Orient Securities (Hong Kong) Limited be liable or responsible for loss of any kind, whether direct, indirect, consequential or incidental, resulting from the act or omission of any third party occurring in reliance upon the contents of this report. Any information provided in this research report is for information purpose only and have no regards to the investment objectives, financial situation or risk tolerance level of any specific recipient and does not constitute any solicitation or any offer to buy or sell any securities or any other financial instruments. Before entering into any investment contract, individual should exercise judgment or seek for professional advice when necessary. Orient Securities (Hong Kong) Limited may not execute transactions for individual(s) in the securities/instruments mentioned. 6 / 7

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