Cloud Transition to Drive Recovery in Revenue
发布时间:2024-09-05 来源:华泰金融(HK)
Cloud transition to drive recovery in revenue
Nancal Technology’s revenue/attributable net profit (NP)/recurring NP was RMB703/93.14/87mn for 1H24 (-3.89/-9.17/-12.88% yoy), with revenue/attributable NP for 2Q24 at RMB300/37.42mn (-29.04/-37.37% yoy, -25.86/-32.84% qoq). Considering the pace of its cloud transition initiatives, we cut our earnings forecasts and estimate its 2024/2025/2026 EPS at RMB0.91/1.17/1.48 (previous: RMB1.86/2.43/2.99), corresponding to total share capital of 246mn (previous: 167mn) shares. We value its stock at 24.5x 2024E PE, at par with peers’ average on Wind consensus. Our target price is RMB22.27 (previous: RMB50.77 on total share capital of 167mn). BUY.
Administrative expense ratio down, marking efforts strengthened
In 1H24, sales/administrative/R&D expense ratio was 7.77/6.35/14.52%, changing +2.35pp yoy (on enhanced marketing efforts for cloud, industrial engineering, and industrial electrical products & services to gain market share)/-0.36pp yoy (on effective cost reduction measures)/+3.31pp yoy (on new amortization expenses incurred by R&D expenses carried forward as intangible assets at end-2023). In 1H24, net operating cash flow was RMB79.81mn, up by 38.23% yoy, mainly as Nancal strengthened management of operating funds.
Rising cloud product & service revenue to boost earnings
In 1H24, revenue from cloud products & services was RMB202mn, up 31.33% yoy, mainly due to Nancal’s active business expansion in automobile & rail transit and semiconductor electronics. Besides, it has made progress in core cloud products, launching AI Agent in 1H24, which has AI-powered encyclopedia, creation and search capabilities. Le Zao has successfully developed MPM applications through close cooperation with Huawei Cloud iDME platform. Based on Huawei Cloud Base, Le Yi SaaS application creates public cloud application solutions for different sectors. We believe Nancal’s enhancing cloud product strength should help it gain market shares, thereby driving a recovery in attributable NP in 2024-2025.
Generative AI + industrial software, commercialization to accelerate
In 1H24, Nancal further strengthened collaboration with Huawei in technological capabilities and customer resources. Based on Huawei’s Pangu model, combined with its own ‘Le World’ products, Nancal has created AI+ R&D, AI+ design, AI+ technology, AI+ verification, AI+ maintenance digital solutions for automobile & rail transit, semiconductor electronics and equipment manufacturing sectors, helping customers reduce R&D costs, improve product quality and accelerate innovation. In 1H24, Nancal signed a contract on AI LLM, software tool chain and private cloud development project with a customer, involving amount of RMB124mn (including tax). This marks progress in its ‘generative AI+ industrial software’ strategy and should potentially accelerate its commercialization, in our view.
Risks: weaker demand than we expect; intensified market competition.