20220617-招银国际-广联达-002410.SZ-Infrastructure_construction_management_as_new_growth_driver_in_the_9th_Three-Year_Plan_12页_2mb

Glodon (002410 CH) Company Update Summary

Core Content

Glodon, a leading domestic construction software provider, has outlined its 9th Three-Year Plan (2023-2025) with a strategic focus on building a software ecosystem and expanding into infrastructure construction management and digital design products. The company is aiming to leverage its Digital Construction Platform (PaaS) to enhance its market position and drive growth across the construction industry.

Main Points of the 9th Three-Year Plan

• Ecosystem Development: Glodon is positioning itself as an Industry Platform, aiming to expand its product offerings along the construction supply chain.
• Digital Construction Platform (PaaS): The company is launching a cloud-based PaaS to enable SaaS products and allow ISVs to develop niche applications.
• Infrastructure Construction Management: This segment is identified as a new growth driver, with a clear focus on roads/highways and a target of RMB400mn in newly signed contracts for 2022.
• Profitability Timeline: Management is confident that the construction management segment will turn profitable in 2023-2024.
• Revenue Guidance: The segment is expected to grow at +30% YoY in 2022E, and the company continues to show positive growth trends.

Key Information

• Product Focus: Glodon will focus on three core SaaS products: Digital Design, Zebra Progress, and Construction Costing.
• Market Size: Glodon expects RMB17.2bn in annual digitalization spending in the infrastructure construction sector under the 14th Five-Year Plan.
• Profitability: The construction management segment is expected to have a blended gross margin over 60%, with smart construction at 50%.
• Earnings Forecast: The company maintains its BUY rating, with an unchanged target price of RMB72.03.
• Share Performance: Over the past 12 months, the stock has shown positive performance, with 16.5% 3-month growth and 10.7% absolute 1-month growth.

Financial Highlights (FY20 - FY24E)

Valuation

• Target Price: RMB72.03, which is +38.3% above the current price of RMB52.10.
• EV/Sales Ratio: Maintained at 12x FY22E, in-line with a 3-year mean.
• Peer Comparison: Glodon is compared to other IT and software companies, with EV/sales and FCF margin as key valuation metrics.

Operating Model and Financial Summary

• Revenue Breakdown: Engineering costing dominates the revenue mix, contributing ~68% of total revenue in FY22E.
• Gross Margin: Expected to decrease from 88.7% in FY20 to 80.4% in FY24E.
• Operating Margin: Expected to decrease from 16.9% in FY22E to 15.6% in FY24E.
• Net Profit Margin: Expected to increase from 13.4% in FY22E to 13.4% in FY24E.
• Cash Flow: Glodon is expected to generate positive operating cash flow and maintain net cash position in its balance sheet.

Key Ratios

• Receivable Turnover Days: Decreased from 49 in FY20 to 23 in FY24E.
• Unearned Revenue Days: Decreased from 81 in FY20 to 48 in FY24E.
• ROE: Increased from 7% in FY20 to 17% in FY24E.
• ROIC: Increased from 18% in FY20 to 82% in FY24E.

Shareholding and Stock Data

• Market Cap: RMB62,019 million.
• Share Performance:
  • 1-month: +10.7%
  • 3-month: +16.5%
  • 6-month: -21.8%
• Chairman: Diao Zhizhong with 16.0% ownership.

Analyst Ratings

• CMBIGM Rating: BUY
• CMBIGM Ratings:
  • BUY: Potential return of over 15% over next 12 months
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark
  • MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark

Conclusion

Glodon is well-positioned to benefit from the growing demand for digital construction solutions in China. With a clear product roadmap, strategic expansion into infrastructure construction management, and a solid financial performance, the company continues to be a BUY recommendation. The target price of RMB72.03 is unchanged, and the company is expected to maintain positive growth and improve profitability in the upcoming years.