20220110-招银国际-中国软件国际-00354.HK-Huawei_worsening_balance_sheet_adds_uncertainty_8页_1mb

CMB International Securities | Equity Research | Company Update Summary

Core Content

This document provides an equity research update on Chinasoft (354 HK), highlighting the impact of Huawei's declining revenue on Chinasoft's financial outlook and performance. It outlines key financial metrics, earnings revisions, valuation ratios, and investment recommendations.

Main Points

• Huawei's Financial Outlook:

  • Huawei expects FY21 revenue to decline by 28.9% YoY to RMB634bn, marking its first revenue decline in a decade.
  • The decline is attributed to U.S. sanctions affecting its consumer business, including the Honor divestment.
  • Despite this, Huawei is expected to continue heavy R&D spending, shifting its focus from hardware to software and cloud-centric business.

• Impact on Chinasoft:

  • Huawei accounted for 55% of Chinasoft's FY20 revenue, primarily from IT outsourcing and cloud services.
  • Chinasoft's FY21 net profit growth target has been revised down from +30% to +20% YoY due to lower gross profit margin (GPM) and increased labor costs.
  • FY2H21 GPM is estimated at 30.5%, lower than the pre-COVID-19 level of 31.0%.

• Investment Recommendation:

  • Maintain BUY rating with a revised target price of HK$11.26 (down from HK$17.53).
  • The lower target price reflects increased uncertainty around Huawei's business profitability.

Key Financial Information

Revenue and Net Profit Projections (RMB mn)

Earnings Per Share (EPS)

Valuation Metrics

Earnings Revisions

Financial Summary

Income Statement Highlights

• Gross margin is expected to decrease slightly to 29.1% in FY21E, from 29.4% in FY20A.
• Operating margin is projected to decline to 5.5% in FY21E, from 5.9% in FY20A.
• Net profit margin is expected to remain at 6.3% in FY21E, down from 6.7% in FY20A.

Balance Sheet Highlights

• Cash & equivalents are expected to increase to RMB5,758mn in FY21E.
• Total assets are projected to rise to RMB15,844mn in FY21E.
• Total liabilities are expected to grow to RMB5,931mn in FY21E.
• Total equity is projected to increase to RMB9,913mn in FY21E.

Shareholding and Stock Data

• Market Cap: HK$26,822mn
• Avg 3 mths t/o: HK$196.88mn
• 52w High/Low: HK$16.28 / HK$6.83
• Total Issued Shares: 3,069mn

Share Performance

Shareholding Structure

Peer Valuation Comparison

Analyst Certification

• The research analyst certifies that the views expressed accurately reflect their personal opinions.
• They confirm that they and their associates have not traded the stock within 30 days before the report was issued.
• The analyst has no financial interests in the companies covered in the report.

CMBIS Ratings

• BUY: Potential return of over 15% over next 12 months.
• HOLD: Potential return of +15% to -10% over next 12 months.
• SELL: Potential loss of over 10% over next 12 months.
• NOT RATED: Stock is not rated.
• OUTPERFORM: Industry expected to outperform the market.
• MARKET-PERFORM: Industry expected to perform in-line with the market.
• UNDERPERFORM: Industry expected to underperform the market.

Important Disclosures

• There are risks involved in trading securities.
• The report is not tailored to individual investors.
• Past performance does not guarantee future results.
• The value and returns of investments are uncertain and may fluctuate.
• CMBIS does not assume liability for any loss, damage, or expense resulting from reliance on the report.
• The report is for intended recipients only and not for distribution without consent.