20210825-招银国际-广联达-002410.SZ-Operating_leverage_from_SaaS_emerging_10页_1mb

Glodon (002410 CH) Company Update Summary

Core Content and Key Highlights

Glodon, a Chinese software and IT services company, reported strong FY2Q21 results that exceeded both the analyst's and the consensus estimates. The company's performance was driven by significant growth in its SaaS (Software as a Service) business, which contributed to improved operating leverage and higher net profit margins.

Main Points

• SaaS Growth: Construction Costing SaaS revenue grew by +71% YoY to RMB618mn, representing 46% of FY2Q21 total revenue. SaaS accounted for 62% of the Costing revenue, with newly signed contracts increasing by +20% YoY to RMB1,040mn and unearned revenue rising by +237% YoY to RMB1,708mn.
• Operating Leverage: The operating margin improved by +6.8 pct pts YoY to 18.4%, which is the highest level since FY3Q18, indicating that the company is benefiting from the SaaS transition.
• Construction Management: Although Construction Management revenue declined by -2% YoY, newly signed contracts surged by +100% YoY to approximately the level of FY20 full year revenue. The company maintains a +30% YoY growth target for the full year, but the analyst is more conservative with a +23% YoY growth forecast for the segment due to potential delays in new construction projects caused by tightened policies on the property sector.
• Earnings: Net profit was RMB209mn, up by +172% YoY, and beat the analyst's estimate by +56% and the consensus by +84%. The operating profit also showed a significant increase of +103% YoY to RMB244mn.
• Valuation: The analyst maintains a BUY rating with a new target price of RMB91.72, up from RMB91.36, based on an unchanged 18x FY22E EV/sales multiple, which is 50% above its 3-year average. This suggests the company is being re-rated due to increasing SaaS revenue contribution and expanding free cash flow.

Financial Performance Overview

Revenue Growth

• FY2Q21: Revenue reached RMB1,329mn, up by +27% YoY and +57% QoQ, surpassing estimates.
• FY20A: Revenue was RMB4,005mn, with +13% YoY growth.
• FY19A: Revenue was RMB3,541mn, with +22% YoY growth.

Net Profit

• FY2Q21: Net profit was RMB209mn, up by +172% YoY.
• FY20A: Net profit was RMB330mn, with +34% YoY growth.
• FY19A: Net profit was RMB235mn, with -47% YoY growth.

EPS (Earnings Per Share)

• FY2Q21: EPS was RMB0.18, up by +165% YoY and +173% QoQ, beating the analyst's estimate by +56% and the consensus by +84%.
• FY20A: EPS was RMB0.28, with +34% YoY growth.
• FY19A: EPS was RMB0.21, with -47% YoY growth.

Revenue Breakdown

• Engineering Costing SaaS: RMB618mn (+71% YoY, +13% QoQ).
• Engineering Costing Non-SaaS: RMB372mn (-1% YoY, +166% QoY).
• Construction Management: RMB235mn (-2% YoY, +184% QoY).
• Others: RMB104mn (+58% YoY, +24% QoY).

Earnings Revision

• Sales: FY21E at RMB4,984mn (unchanged from FY20E).
• Gross Profit: FY21E at RMB4,326mn, a -2% change from FY20E.
• Operating Profit: FY21E at RMB617mn, a +2% increase from FY20E.
• PBT (Profit Before Tax): FY21E at RMB637mn, a -4% change from FY20E.
• Net Profit: FY21E at RMB546mn, a +2% increase from FY20E.
• EPS: FY21E at RMB0.46, a +2% increase from FY20E.

Valuation Analysis

• EV/Sales: The company's EV/sales ratio is 14.2x for FY21E and 12.2x for FY22E.
• FCF Margin: The free cash flow margin is 19% for FY21E and 17% for FY22E.
• Sales CAGR (FY20-23): 22%.
• EPS CAGR (FY20-23): 50%.

Shareholding and Performance

• Shareholding Structure: The Chairman, Xi Zhizhong, holds 16.0%, and other co-founders hold 20.3%.
• Stock Performance:
  • 1-Month: -12.6% absolute, -8.0% relative.
  • 3-Month: -11.8% absolute, -6.4% relative.
  • 6-Month: -17.9% absolute, -5.2% relative.

Financial Summary

Income Statement

• Revenue: RMB3,541mn (FY19A), RMB4,005mn (FY20A), RMB4,984mn (FY21E), RMB5,751mn (FY22E), RMB6,518mn (FY23E).
• Gross Profit: RMB3,170mn (FY19A), RMB3,550mn (FY20A), RMB4,326mn (FY21E), RMB4,999mn (FY22E), RMB5,623mn (FY23E).
• Operating Profit: RMB338mn (FY19A), RMB408mn (FY20A), RMB617mn (FY21E), RMB1,013mn (FY22E), RMB1,172mn (FY23E).
• Net Profit: RMB235mn (FY19A), RMB330mn (FY20A), RMB546mn (FY21E), RMB836mn (FY22E), RMB1,004mn (FY23E).

Cash Flow Summary

• Net Cash from Operating: RMB641mn (FY19A), RMB1,876mn (FY20A), RMB915mn (FY21E), RMB1,520mn (FY22E), RMB1,726mn (FY23E).
• Net Cash from Investing: RMB-227mn (FY19A), RMB-697mn (FY20A), RMB-620mn (FY21E), RMB-469mn (FY22E), RMB-465mn (FY23E).
• Net Cash from Financing: RMB-389mn (FY19A), RMB1,400mn (FY20A), RMB-533mn (FY21E), RMB-348mn (FY22E), RMB-352mn (FY23E).

Balance Sheet

• Total Assets: RMB6,167mn (FY19A), RMB9,547mn (FY20A), RMB9,896mn (FY21E), RMB10,841mn (FY22E), RMB11,955mn (FY23E).
• Total Liabilities and Equity: RMB6,167mn (FY19A), RMB9,547mn (FY20A), RMB9,896mn (FY21E), RMB10,841mn (FY22E), RMB11,955mn (FY23E).

Key Ratios

• Revenue Mix:
  • Engineering Costing: 71% of total revenue (FY21E).
  • SaaS: 49% of Engineering Costing revenue (FY21E).
  • Engineering Construction: 23% of total revenue (FY21E).
• Growth:
  • Revenue: 24% YoY for FY21E.
  • Operating Profit: 51% YoY for FY21E.
  • EPS: 65% YoY for FY21E.

Conclusion

Glodon's FY2Q21 results were robust, driven by the strong performance of its SaaS business and improved operating leverage. The company is expected to maintain its growth trajectory, with the analyst maintaining a BUY rating and raising the target price to RMB91.72. The valuation is based on a 18x FY22E EV/sales multiple, which is 50% above its 3-year average. The company's financial performance and strategic focus on SaaS are key drivers of its current valuation and growth expectations.