Chinasoft International Ltd (CFTLF)

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In the first half of the year, it made a huge profit of 8.3 billion. Can ChinaSoft International, which relies on core users, continue to break the game?

source
https://finance.sina.com.cn/jjxw/2021-08-24/doc-ikqciyzm3335707.shtml

August 24, 2021 16:49 Interface News

On the evening of August 23, Chinasoft International, a domestic cloud management service provider, released an interim performance report for 2021 as of the end of June this year.
In terms of fundamental data, during the period, revenue and net profit matched each other, and revenue and net profit achieved new breakthroughs compared to the same period last year.
However, when the Hong Kong stock market opened the next day, ChinaSoft International's stock price opened higher and lowered, and once fell 4.09%.

At present, ChinaSoft International, which focuses on the transformation of cloud services, has made breakthroughs in smart cloud services, and Jiefang's business model is also continuously evolving and upgrading. Not long ago, ChinaSoft International joined hands with Poly and MCC Baosteel to commit to the digital transformation of enterprises to achieve intelligent upgrades. How is Chinasoft International's one-stack path from cloud application to cloud use?
Through this new financial report, you can get a glimpse of the cloud transformation of Chinasoft International, the “domestic IT service brother”.

The transformation of the cloud industry is accelerating, and Chinasoft International relies on "services" to break through
During the reporting period, ChinaSoft International achieved revenue of 8.34 billion yuan, a year-on-year increase of 37.7%, slightly higher than market and analyst expectations.
The feedback is at the gross profit level. During the period, Chinasoft International's gross profit reached 2.294 billion yuan, a decrease of 39.1% compared to the previous year. What can be found is that the gross profit rate reached 27.5%, an increase of 0.3% year-on-year.

In terms of net profit, during the period, ChinaSoft International's net profit reached 518 million yuan, a year-on-year increase of 29%.
At present, ChinaSoft International’s main revenue sources are divided into two parts, Technical Professional Services Group (TPG) and Internet Information Technology Services Group (IIG). During the period, TPG revenue reached 7.374 billion yuan, a year-on-year increase of 42.2%. IIG revenue was 966 million yuan, an increase of 10.6% year-on-year.

On the one hand, the domestic cloud industry chain structure is changing. In the cloud market, Huawei Cloud’s market share in China’s IaaS and PaaS in the first quarter increased by 2.4 percentage points year-on-year to 10.9%. According to media reports, as of August 6, Huawei Hongmeng users With more than 50 million users, Huawei will increase its user target from 300 million to 400 million by the end of this year. As Huawei's long-term IT service partner, ChinaSoft International may benefit from the rapid growth of Huawei Hongmeng.
In July of this year, ChinaSoft International and Huawei joined hands again, and ChinaSoft International signed a CLA and officially joined the Huawei openGauss open source community.

On the other hand, the number of large customers with service income has grown rapidly. During the period, in the past 12 months, there were 152 large customers with more than 6 million yuan, of which 2,956 were registered government users, and the number of active government users 318 companies, an increase of 52.2% year-on-year, and the steady growth of major customers provided guarantee for Chinasoft International's revenue.
However, ChinaSoft International’s reliance on major customers has not improved, but has tended to increase. In the first half of 2020, ChinaSoft International’s top five customers accounted for 71.3% of revenue, and the top ten customers accounted for 76%. During the reporting period, the top five customers accounted for 72.4%, and the top ten customers accounted for 72.4% of revenue. The ratio is 78.7%, mainly from core users such as Huawei, the government, and financial industry banks.

For ChinaSoft International, which pursues a major account strategy, changes in core customers will affect Chinasoft International’s performance and revenue. The previous divestiture of Honor from Huawei’s system can also illustrate this point well. The major account strategy is more like a one for ChinaSoft International. A double-edged sword.

In addition, sales and service costs account for a relatively large proportion of total revenue. During the period, sales and service costs reached 6.047 billion yuan, a year-on-year increase of 37.1%, accounting for 72.5% of total revenue. This also means that Chinasoft International is still facing the situation of "high investment for high growth" to a large extent. At present, The competition in the cloud market has changed. Whether ChinaSoft International can continue to undertake the "investment for growth" strategy will still need time.
In addition, in the cloud management service market, the competition faced by Chinasoft International cannot be underestimated. Recently, IDC released a report on the market share of China's third-party cloud management services in 2020. Chinasoft International ranked second with a market share of 6.8%, but Accenture firmly occupies the top position in the market.

How does ChinaSoft International "stack" the 100 billion track?
In order to change the status quo, as early as 2018, Chinasoft International has begun to develop cloud intelligent business. Now, the certainty of cloud intelligent business has become the second growth curve of Chinasoft International. In March of this year, ChinaSoft International participated in SaaS company's six-degree human and billion yuan financing, which was also interpreted by the market as ChinaSoft International's further deployment of cloud intelligent business.

According to IDC's latest "China Cloud Professional Service Market Tracking (2020H2)" report, the company ranks first in the two market segments of the cloud professional service market, "Cloud Migration Service" and "Cloud Development Service".
Based on the financial report, during the reporting period, ChinaSoft International pointed out that the main growth driver of service revenue was the rapid development of cloud intelligence business. As of the end of June, revenue from service revenue reached 8.259 billion yuan, a year-on-year increase of 38.3%.

On the one hand, the demand for the cloud in the entire market is expanding, especially in the park, retail, automotive, government, and financial industries. Take the park industry as an example. At present, ChinaSoft International has cooperated with more than 270 smart park ecological partners and 128 hospital park ecological partners. Service.
In order to meet the needs of customers in industries such as parks and retail, ChinaSoft International has established a closer ecological cooperation relationship with Huawei Cloud, becoming the first overseas SaaS business partner of Huawei Cloud in the Middle East.

In fact, the cloud intelligence business is also an extension of Chinasoft International's own business. The deployment of intelligent cloud business has certain basic advantages. During the reporting period, the total number of employees of Chinasoft International reached 83,178, which is an increase of 22.3% compared with 67,992 in the same period last year. It can also reflect the R&D strength of ChinaSoft International from the side.
In addition, the future development potential of the cloud market is constantly being released. According to industry data, in 2019, companies will probably migrate about 20% of their applications to the cloud, but by 2025, companies will migrate 85% of their applications to the cloud. In this way, the development space of the cloud service market is extremely broad.

As a cloud player, Alibaba Cloud has taken the lead in achieving profitability for several consecutive quarters, providing confidence for the development of domestic players. On August 3, Alibaba announced its latest quarterly financial report. Among them, Alibaba Cloud’s quarterly revenue was 16.051 billion yuan and adjusted net profit expanded to 340 million yuan.
However, the cloud intelligence market faces no less competition than the cloud management service market. Take the smart park track, IDC pointed out that in 2019, China's smart park digital investment exceeded 160 billion yuan, and the compound annual growth rate of this figure will exceed 20% in the next three years.

In addition, the annual expenditure on cloud research and development and investment is huge. China Telecom plans to spend 59.7 billion yuan in cloud-related investment by 2023. For Chinasoft International, if it wants to accelerate the pace of cloud intelligence, Related research and development and investment are inevitable.
It should be noted that the growth of cloud intelligence has not been converted into income very well, in other words, there is no ideal realization effect. Cloud intelligence business belongs to IIG. During the reporting period, IIG business accounted for 11.58% of total revenue. The rapid development of cloud intelligence has not been well transformed into revenue growth.

Concluding remarks
In the new round of financial reports, ChinaSoft International can be said to have delivered an answer that exceeded expectations. Although the market ranking has not changed during the period, it ranks first in the industry in terms of market growth rate, but it depends on core major customers or ChinaSoft International’s future. Disadvantages of development.
As of August 24, among the 17 relevant constituent stocks, only Chinasoft International, Mobvista, Fubo Group and Flow Holdings are still in the rising stage. This may indicate that the capital market is optimistic about the long-term potential of Chinasoft International.

With the development and iteration of a new generation of information technology, in the post-epidemic era, my country has further strengthened its determination to develop a digital economy from policy and strategy levels. The pace of digital transformation in various industries has accelerated significantly, and the demand for IT services has shown an increasing trend, serving as a track For the first-tier players, ChinaSoft International still has the ability to "Nuggets" in the future.