20211028-招银国际-China_Software___IT_Services_Property_weakness_may_slow_digitalization_pace_11页_1mb

CMB International Securities | Equity Research | Sector Update Summary

Core Content

This report focuses on the performance and outlook of two Chinese software and IT services companies, Glodon (002410 CH) and MYC (909 HK), within the context of the weakening property sector. It analyzes the impact of property market slowdown on their business models, financial results, and future growth prospects, while also comparing their valuations and earnings forecasts.

Main Points

• Property Sector Weakness: The Chinese property sector has shown signs of weakening since August 2021, with a decline in commercial building newly started GFA and property sales. This may slow down the pace of digitalization in the sector.

• SaaS vs. Non-SaaS Impact:

  • Glodon: SaaS business is less affected by property sales weakness, as it is based on annual subscriptions. The company reported strong FY3Q21 results with SaaS revenue growing by 55% YoY and a topline growth of 45% YoY. However, construction management revenue, which is project-based, could be impacted, with expected growth of 25% YoY in FY21.
  • MYC: Its SaaS revenue is also less directly impacted by property sales, but non-SaaS construction management solutions are more vulnerable. MYC’s FY1H21 contract liabilities were RMB658mn, showing a 54% YoY increase, but its earnings forecast was revised downward due to weaker demand from property developers.

• Performance Highlights:

  • Glodon’s FY3Q21 revenue was RMB1,423mn (+45% YoY), and net profit was RMB189mn (+89% YoY).
  • MYC’s FY3Q21 revenue was RMB1,329mn (+29% YoY), with net profit at RMB184mn (+14% YoY).

• Earnings Revisions:

  • Glodon's earnings for FY21-23E were raised by 2-4% to reflect better-than-expected SaaS transition.
  • MYC's earnings for FY21-23E were cut by 2-10% due to concerns over weak property sales and reduced digitalization spending.

• Valuation:

  • Glodon is maintained at a BUY rating with a new target price of RMB95.18, based on an EV/sales multiple of 18x FY22E.
  • MYC is also maintained at a BUY rating with a new target price of HK$35.75, reflecting a lower P/S multiple due to weaker growth expectations.
  • Glodon is expected to have a higher revenue growth (25% YoY for FY21) compared to MYC (16% YoY for FY21), and a stronger FCF margin.

• Market Cap and EV/Sales:

  • Glodon has a higher market cap (US$13,466 mn) and a higher EV/sales multiple (15.7x for FY21E).
  • MYC has a lower market cap (US$6,808 mn) and a lower EV/sales multiple (16.9x for FY21E).

• Key Ratios:

  • Glodon's SaaS revenue contribution increased from 54% in FY1H21 to 47% in FY3Q21, with a higher proportion of revenue coming from SaaS.
  • MYC's SaaS revenue was 57% in FY1H21, but this is expected to remain stable in FY3Q21.

Key Information

• Glodon:

  • Strong FY3Q21 performance with revenue and net profit growth.
  • Better SaaS conversion in new regions.
  • Expected to outperform MYC due to lower downside risk.
  • Revenue CAGR of 20% for FY20-23E.

• MYC:

  • Weaker property sales have limited impact on SaaS revenue.
  • Lower growth in non-SaaS construction management due to reduced project starts.
  • Earnings revised down due to weaker demand from property developers.
  • Revenue CAGR of 17% for FY20-23E.

Figures and Data

• Figure 1: China commercial building GFA sold.
• Figure 2: China commercial buildings newly started.
• Figure 3: Glodon SaaS revenue.
• Figure 4: Glodon revenue breakdown.
• Figure 5: MYC SaaS revenue.
• Figure 6: MYC revenue breakdown.
• Figure 7: Weak property sales has limited impact to SaaS as MYC charges on annual subscription.
• Figure 8: Lower new starts could affect project-based construction management software solutions.
• Figure 9: FY3Q21 results review.
• Figure 10: FY1Q21 revenue breakdown.
• Figure 11: Glodon earnings revision.
• Figure 12: CMBI estimates vs. consensus.
• Figure 13: MYC earnings revision.
• Figure 14: CMBI estimates vs. consensus.
• Figure 15: Peers' valuation.
• Figure 16: Glodon 12M forward EV/sales.
• Figure 17: MYC 12M EV/sales.

Conclusion

Glodon is favored over MYC due to better SaaS transition and lower downside risk. Both companies are expected to see some impact from the weakening property sector, but Glodon's subscription-based model and stronger SaaS growth provide more resilience. The report maintains a BUY rating for both, with updated target prices reflecting revised growth and valuation expectations.