20220113-招银国际-明源云-00909.HK-Recovery_not_in_sight_yet_12页_1mb

Summary of CMB International Securities | Equity Research | Company Update on Ming Yuan Cloud (909 HK)

Core Content

This report provides an equity research update on Ming Yuan Cloud (MYC, 909 HK), focusing on its business performance, strategic direction, and financial outlook. The analysis includes revenue trends, earnings revisions, and valuation metrics, with a particular emphasis on the impact of property sector regulations and the ongoing shift from on-premise ERP to SaaS.

Main Points

Business Performance

• FY21 Review:
  • SaaS segment beat its full year target, growing at +50% YoY, driven by rising ASP and increased coverage of Construction Cloud.
  • ERP segment underperformed due to the impact of property sector policy headwinds, with +15-20% YoY growth but missing prior targets.
  • Account receivable as a percentage of revenue was at 10%, with the largest customer below RMB10mn.
• FY22E Outlook:
  • SaaS growth is expected to be +35-45% YoY.
  • ERP is forecast to decline 10-20% YoY, primarily due to the partial migration to SaaS and the slow recovery of the property sector, despite regulatory easing.
  • ERP SaaS migration began in Sep 2021, with pricing around 25-30% of the existing license model.
  • The company expects 10-20% of ERP clients to transition to SaaS, starting with small to mid-sized customers.
  • ERP for industrial properties is already on a SaaS model, while residential ERP will undergo migration.

Strategic Focus

• MYC is shifting focus to standardized SaaS and the Skyline Open Platform, which allows third-party IT providers to develop customized solutions.
• The company is enhancing its localization capabilities by aligning its SaaS products with the Huawei ARM-based ecosystem to better serve SOE clients.
• MYC aims to provide comprehensive real estate solutions across the value chain, from development to service.

Earnings and Valuation

• Earnings Revision:
  • Net profit for FY21-23E has been cut by 6-18% due to weaker ERP sales and a slow SaaS transition.
  • Target Price has been revised to HK$25.24 (from HK$35.75), based on a 16x FY22E P/S.
  • The current price is HK$18.18, which is +38.8% below the target price.
• Valuation Metrics:
  • P/S has been decreasing over time, from 23.8x (FY19A) to 9.4x (FY23E).
  • FCF margin remains at 22%, showing resilience despite high R&D and S&M costs.
  • Core EPS is projected to grow from 0.15 (FY19A) to 0.34 (FY23E), with a +33% YoY growth in FY22E and +18% YoY growth in FY23E.
  • ROE is expected to increase from -11% (FY20A) to 8% (FY23E).

Financial Highlights

• Revenue is expected to grow from RMB1,264 mn (FY19A) to RMB3,210 mn (FY23E), with a 23% YoY growth in FY23E.
• Gross profit is forecast to increase from RMB995 mn (FY19A) to RMB2,658 mn (FY23E), with +24% YoY growth in FY23E.
• Operating profit is projected to rise from RMB159 mn (FY19A) to RMB514 mn (FY23E), showing a +61% YoY growth.
• Core net profit is expected to grow from RMB216 mn (FY19A) to RMB631 mn (FY23E), with +33% YoY growth in FY22E and +18% YoY growth in FY23E.
• Net margin is projected to increase from 16.4% (FY21E) to 19.6% (FY23E).

Share Performance

• The company's market cap is HK$35,789 mn, with a 3-month trailing turnover of HK$156.22 mn.
• The stock has underperformed in the last 12 months, with a -50.6% return.
• Shareholding Structure:
  • Mr. Gao Yu (Chairman): 20.11%
  • Mr. Chen Xiaohui (VP): 15.09%
  • Mr. Jiang Haiyang (CEO): 9.49%

Key Information

Revenue and Growth

• FY21E Revenue: RMB2,218 mn, with +30% YoY growth.
• FY22E Revenue: RMB2,612 mn, with +18% YoY growth.
• FY23E Revenue: RMB3,210 mn, with +23% YoY growth.

Earnings and Profitability

• Core net profit is expected to increase from RMB363 mn (FY22E) to RMB631 mn (FY23E).
• EPS is projected to rise from 0.26 (FY22E) to 0.34 (FY23E).
• Net margin is forecast to increase from 16.4% (FY21E) to 19.6% (FY23E).
• Operating margin is expected to increase from 8.6% (FY21E) to 16.0% (FY23E).

Valuation Comparison

• P/S has been revised to 13.6x (FY21E) and 11.5x (FY22E), with a 16x (FY22E) fully diluted P/S used to derive the new target price.
• 12M forward P/S is shown in a chart, highlighting the valuation band.
• Peer Comparison:
  • Glodon: 14.0x P/S, 18% Sales CAGR, 21% EPS CAGR.
  • Yonyou: 11.7x P/S, 13% Sales CAGR, 11% EPS CAGR.
  • Kingsoft Office: 35.4x P/S, 62% Sales CAGR, 39% EPS CAGR.
  • Adobe: 16.0x P/S, 43% Sales CAGR, 17% EPS CAGR.

Financial Summary

• Net cash from operating is expected to increase from RMB339 mn (FY19A) to RMB717 mn (FY23E).
• Net cash from financing is projected to decrease from RMB30 mn (FY19A) to RMB-197 mn (FY23E).
• Cash & equivalents are expected to grow from RMB732 mn (FY19A) to RMB6,013 mn (FY23E).
• Total liabilities and equity is projected to increase from RMB1,235 mn (FY19A) to RMB9,343 mn (FY23E).

Conclusion

CMB International Securities maintains a BUY rating for MYC, with a revised target price of HK$25.24, reflecting lower earnings visibility and slower SaaS transition. Despite the challenges in the property sector, MYC's focus on SaaS and its strategic move towards SOE clients and Huawei ecosystem could provide long-term growth potential. The company's core net profit and EPS are projected to grow, and P/S has been reduced, suggesting a more conservative valuation approach. The operating model and revenue mix are also evolving, with SaaS expected to become a larger portion of revenue over time.