20220217-招银国际-广联达-002410.SZ-Reset_expectation_8页_1mb

Glodon (002410 CH) Company Update Summary

Core Content

Glodon is a Chinese software and IT services company that has been transitioning to a SaaS (Software as a Service) model since 2017. The company has shown strong performance in FY21, with preliminary net profit exceeding expectations due to improved operating leverage. Despite a weak property industry environment, the company is expected to maintain strong revenue growth in its SaaS and construction management segments. The current valuation is seen as undervalued compared to its long-term potential, and the stock is maintained at a BUY rating with a revised target price of RMB80.55.

Main Points

• Preliminary FY21 Net Profit: RMB650-700mn, representing a YoY growth of 96.7-111.9%.
• Revenue Growth: FY21E revenue is expected to reach RMB5,250mn, with a YoY growth of 31%.
• Operating Profit Growth: FY21E operating profit is expected to reach RMB716mn, a YoY growth of 76%, with an increase in operating margin to 13.6%.
• SaaS Transition: The SaaS migration is nearing completion by 2022E, which is expected to improve free cash flow significantly.
• Construction Management Growth: The construction management business is expected to grow by 25% YoY to RMB1.2bn, despite a decline in China's real estate GFA.
• Valuation: Glodon is trading at 1-SD below its 3-year mean, and the current valuation has not fully reflected the benefits of SaaS, including improved cash flow and less exposure to the property cycle.
• Target Price: Revised to RMB80.55, based on a lower 15x EV/sales multiple for FY22E, reflecting the uncertainty in the construction management segment.

Key Information

• SaaS Revenue Contribution: SaaS is now a significant part of Glodon's revenue, with a 48% share in FY21E.
• Comparative Analysis with MYC (909 HK): Glodon is preferred over MYC due to higher user stickiness and lower exposure to property developers.
• FCF Margin: Glodon's FCF margin is 36% in FY20, significantly higher than MYC's 21%.
• Shareholding: The company is chaired by Xi Zhizhong, with other co-founders holding 16.3%.
• Market Performance: Over the past 12 months, Glodon's stock has underperformed, with a -10.4% return.
• Earnings Revisions: FY21E net profit was revised upwards by 20%, while FY22-23E earnings were largely unchanged.
• Financial Highlights:
  • Net Profit: Expected to reach RMB686mn in FY21E, up 20% from the previous estimate.
  • Operating Cash Flow: Expected to generate RMB1,599mn in FY21E, showing strong cash flow generation.
  • Capital Expenditure: Expected to remain stable in FY21E, with Capex at RMB535mn.
  • Dividend Yield: Remains at 0% for all years.
  • ROE: Expected to increase from 7% in FY19 to 14% in FY23E.

Valuation Table Summary

Operating Model

• Revenue Mix:
  • Engineering Costing: 70% in FY21E.
  • SaaS: 48% in FY21E.
  • Engineering Construction: 23% in FY21E.
• Growth Trends:
  • Revenue growth is expected to slow down in FY22E and FY23E.
  • Operating profit margin is expected to increase, reflecting the benefits of SaaS.
• Cash Flow:
  • Strong operating cash flow is expected, with FCF margin improving over the years.

Financial Summary

• Income Statement:
  • Revenue: RMB5,250mn in FY21E.
  • Operating Profit: RMB716mn in FY21E.
  • Net Profit: RMB686mn in FY21E.
• Cash Flow Summary:
  • Operating cash flow is expected to be RMB1,599mn in FY21E.
  • Net cash from investing activities is expected to be negative, reflecting capital expenditures.
  • Net cash from financing activities is expected to be negative in FY21E, with dividend payments.

Balance Sheet Highlights

• Total Assets: Expected to increase to RMB12,632mn in FY23E.
• Total Liabilities and Equity: Expected to reach RMB12,632mn in FY23E.
• Current Ratio: Expected to remain strong, with a current ratio of 1.76 in FY23E.
• Net Debt to Equity: Remains at net cash for all years.

Key Ratios

• Gross Margin: Expected to decrease from 89.5% in FY19 to 84.4% in FY23E.
• Operating Margin: Expected to increase from 9.5% in FY19 to 16.7% in FY23E.
• Net Profit Margin: Expected to increase from 6.6% in FY19 to 15.3% in FY23E.
• ROE: Expected to increase from 7% in FY19 to 14% in FY23E.
• ROIC: Expected to increase from 14% in FY19 to 43% in FY23E.

Conclusion

Glodon's strong performance in FY21 and the ongoing SaaS transition are positive indicators. Despite the challenges in the property industry, the company is well-positioned for long-term growth. The current valuation is seen as undervalued, and the stock is maintained at a BUY rating with a new target price of RMB80.55, reflecting a more conservative outlook due to the uncertainty in the construction management segment. The company's financial health and increasing SaaS revenue contribution support its re-rating potential.