20220401-招银国际-China_Software___IT_Services__Diverging_property_SaaS_outlook_12页_1mb

China Software & IT Services: Diverging SaaS Outlook for Glodon and MYC

Core Content Overview

The document provides an analysis of the performance and outlook for two Chinese software and IT services companies: Glodon (002410 CH) and MYC (909 HK). It highlights the diverging trends in their SaaS business amidst continued weakness in the property sector. The report includes financial results, earnings revisions, valuation metrics, and strategic insights.

Main Points and Key Insights

Property Sector Context

• The Chinese property sector remains weak, with real estate GFA declining by -12% YoY in Jan-Feb 2022.
• Commercial building sales volume and revenue were also weak, with declines ranging from -10% to -19% YoY.
• IT spending by property developers is expected to slow due to ongoing macroeconomic challenges.

Glodon (002410 CH)

• Performance in FY4Q21:
  • Revenue increased by +42% YoY to RMB2,018mn, beating estimates and consensus.
  • Gross profit rose by +30% YoY to RMB1,572mn.
  • Operating profit surged by +166% YoY to RMB222mn.
  • Net profit increased by +84% YoY to RMB186mn.
• SaaS Highlights:
  • SaaS revenue grew by +41% YoY to RMB1,165mn, representing 36% of total revenue.
  • Newly signed SaaS contracts reached RMB918mn, up +38% YoY.
  • Contracted liabilities for SaaS increased by +36% YoY to RMB2,047mn.
  • Free cash flow margin reached 16%, indicating strong cash flow generation.
• Outlook for FY22E:
  • Guidance suggests +30% YoY growth in Construction Management revenue.
  • SaaS contracted liabilities are expected to grow by +26% YoY to RMB4bn.
• Valuation:
  • Maintained BUY rating with a new target price of RMB82.75.
  • EV/Sales ratio for FY22E is 8.5x, reflecting a 14x multiple based on a 1-SD above the 3-year mean.
  • The company is expected to benefit from ongoing SaaS transformation and operating leverage.

MYC (909 HK)

• Performance in FY21:
  • Revenue increased by +28% YoY to RMB2,184mn, in line with estimates but below consensus.
  • Operating loss of RMB791mn, despite a +28% YoY increase in revenue.
  • Gross profit rose by +31% YoY to RMB1,751mn.
  • Net loss of RMB344mn, with an EPS of -RMB0.18.
• SaaS and ERP Performance:
  • SaaS revenue reached RMB786mn, up +46.1% YoY, but contracted liabilities only grew by +10% YoY.
  • ERP solutions revenue declined by -14.5% YoY.
  • The company faces downside risk to its FY22E SaaS growth target if property sales do not improve significantly.
• Valuation:
  • Downgraded to HOLD with a new target price of HK$11.22.
  • EV/Sales ratio for FY22E is 6.8x, down from 7.2x in FY21E.
  • The lower multiple reflects reduced earnings visibility due to weak SaaS growth and higher operating costs.
• Earnings Revisions:
  • Sales for FY22E are expected to decline by -11% from previous estimates.
  • Operating profit and net profit are projected to fall significantly, with a -63% and -47% decrease respectively.
  • The company's operating margin and net margin are expected to decline, indicating weaker profitability.

Diverging Performance

• Glodon has shown stronger performance due to:
  • Higher user stickiness in its core SaaS product (cost estimator users).
  • Stronger free cash flow and operating leverage.
  • Better SaaS revenue growth and contracted liabilities.
• MYC is more vulnerable due to:
  • Lower user stickiness (based on property sales offices).
  • Slower SaaS growth and weak ERP performance.
  • Higher operating costs, including S&M and R&D expenses, which increased by +52% and +80.4% YoY respectively.
  • G&A expenses also rose sharply due to share-based compensation and listing costs.

Key Figures and Metrics

Conclusion

• Glodon is performing better than MYC in the SaaS segment due to stronger user engagement and better cash flow generation.
• The property sector weakness is a key factor affecting both companies, but Glodon is less impacted due to its SaaS model.
• MYC faces downside risks to its FY22E growth guidance due to weak contracted liabilities and higher operating costs.
• Valuation adjustments reflect the changing outlook for both companies, with Glodon being re-rated upwards and MYC downgraded to HOLD.