20220721-招银国际-明源云-00909.HK-Limited_operating_leverage_when_sales_weaken_8页_1mb

CMB International Global Markets | Equity Research | Company Update: Ming Yuan Cloud (909 HK)

Core Content Summary

Ming Yuan Cloud (MYC), a Hong Kong-listed company, is currently under review by CMB International Global Markets (CMBIGM) with a HOLD rating and a new target price of HK$8.93 (down from HK$11.22). The report highlights several key factors affecting the company's performance and valuation.

Main Points

• Property Sales Decline and Outlook:

  • China property sales by GFA declined by -22% YoY in 1H22, but the decline is expected to moderate to -15% YoY in 2H21.
  • However, weak sales in July and August due to low seasonality and mortgage boycotts caused by construction delays are expected to continue affecting MYC's sentiment.
  • MYC's FY22E revenue is projected to decline -4% YoY to RMB2.1bn, with an expected operating loss of RMB188mn due to its high commission model that limits operating leverage.

• Share Repurchase Program:

  • MYC has a share repurchase plan of up to US$100mn or 192.7mn shares.
  • As of January, 25mn shares have been repurchased, totaling HK$257mn, with RMB5.5bn net cash on hand.
  • The repurchase program is expected to continue, potentially supporting the share price.

• Earnings and Profitability:

  • The FY22E operating profit is expected to be -RMB188mn, down from RMB118mn in FY21.
  • Core net profit for FY22E is estimated at -RMB17mn, reflecting the pressure from the weak property sector.
  • EPS is forecasted at -RMB0.01 for FY22E, down from RMB0.13 in FY21.

• Valuation and Market Comparison:

  • The new target price is based on a 5.9x FY23E P/S multiple, in line with China SaaS peers.
  • P/S is used as the valuation methodology due to the high S&M and R&D costs during the SaaS ramp-up stage.
  • MYC's 12-month forward P/S is in line with the market average.

• Revenue Breakdown:

  • SaaS product revenue is expected to grow significantly, contributing 61% of FY22E revenue.
  • CRM Cloud is the largest revenue contributor, accounting for 48% of total revenue.
  • ERP solutions revenue is expected to decline, contributing 25% of FY22E revenue.

• Financial Position:

  • MYC has RMB5.5bn net cash and a current ratio of 6.57x.
  • Net debt to equity is reported as net cash.
  • ROE is expected to be 0% in FY22E, improving to 3% in FY24E.

Key Information

• Target Price: HK$8.93 (down from HK$11.22)
• Current Price: HK$8.05
• 12-month price performance: -52.4% absolute, -44.5% relative
• Operating model: High commission structure limits operating leverage.
• Revenues: FY22E is expected to decline -4% YoY, while FY23E and FY24E are projected to grow by 17% and 16% respectively.
• Gross margin: Expected to increase to 82.7% in FY22E, 84.1% in FY23E, and 84.4% in FY24E.
• Operating margin: Expected to be -9.0% in FY22E, -1.9% in FY23E, and 2.6% in FY24E.
• Net margin: Expected to be -0.8% in FY22E, improving to 7.2% in FY24E.

Key Ratios

• Revenue mix:
  • SaaS product: 61% in FY22E
  • CRM Cloud: 57% in FY22E
  • ERP solutions: 25% in FY22E
• Growth:
  • Revenue: -4% YoY in FY22E, 17% in FY23E, 16% in FY24E
  • Core net profit: -107% YoY in FY22E, +82% in FY24E
• Margins:
  • Gross margin: 82.7% in FY22E, 84.1% in FY23E, 84.4% in FY24E
  • Operating margin: -9.0% in FY22E, -1.9% in FY23E, 2.6% in FY24E
  • Net margin: -0.8% in FY22E, 7.2% in FY24E
• Liquidity:
  • Current ratio: 6.57x in FY22E
  • Payable turnover days: 46 days
  • Receivable turnover days: 9 days
• Profitability:
  • ROE: -11% in FY20, -6% in FY21, 0% in FY22E, 3% in FY24E
  • FCF margin: 0% in FY22E, 11% in FY24E

Summary

Ming Yuan Cloud is currently facing challenges due to the weak property sector, which is expected to continue affecting its revenue and profitability. The high commission model limits operating leverage, contributing to an expected operating loss in FY22E. Despite this, the company has a substantial net cash position and a share repurchase program that may provide some support to the share price. The HOLD rating reflects the analyst's cautious outlook, with a target price of HK$8.93 based on a 5.9x FY23E P/S multiple. The company's SaaS product is a key revenue driver, while ERP solutions are expected to decline. Overall, MYC's financial position remains strong, with a current ratio of 6.57x and improving profitability expected in the long term.