\u3000\u30 Beijing Telesound Electronics Co.Ltd(003004) 54 Sangfor Technologies Inc(300454) )
Event overview
On April 19, 2022, Sangfor Technologies Inc(300454) released the annual report for 2021. In 2021, the company achieved a total operating revenue of 6.805 billion yuan, an increase of 24.67% year-on-year. The company’s net profit attributable to shareholders of listed companies was about RMB 273 million, a year-on-year decrease of 66.29%, which was basically the same as the decline in operating profit and total profit. The operating cash inflow of the company was RMB 8.704 billion, with a year-on-year increase of 24.71%, which was in line with the growth rate of revenue. The company’s contract liabilities increased from 721 million yuan at the beginning of the year to 1.157 billion yuan, with a net increase of 436 million yuan.
Cloud and security are moving towards integration, and the company’s collaborative advantages of “cloud, network and security” are prominent
In terms of products, the company’s network security business revenue in 2021 was about 3.689 billion yuan, a year-on-year increase of 10.15%, and its proportion in the company’s overall revenue decreased from 61.35% in the same period last year to 54.20% in the current period; The revenue from cloud computing and it infrastructure business was about 2.379 billion yuan, with a year-on-year increase of 49.53%, accounting for 34.97% of the company’s overall revenue from 29.15% in the same period last year; The revenue of basic network and Internet of things business was RMB 737 million, with a year-on-year increase of 42.15%, accounting for 10.83% of the company’s overall revenue from 9.50% in the same period last year. The revenue of cloud computing and it infrastructure business maintained a high growth, the proportion continued to increase, and the development of cloud and security became more balanced.
Recently, the strategy of China’s leading cloud manufacturers has shifted from simply pursuing high revenue growth to improving profitability, and the cloud computing market has returned to the commercial nature. Cloud computing and digital transformation belong to a symbiotic relationship (cloud computing provides technical means and digital transformation realizes business value). China’s penetration rate is still in single digits, the ceiling is still high, and the industry has entered the “golden age”. Hybrid cloud will become the mainstream technology route, and simplicity, ease of use and service empowerment will become the concern of customers. With the acceleration of infrastructure and business applications to the cloud, security will become the endogenous capability of the cloud. The technical route and delivery form have evolved rapidly, and the cloud and security are moving towards integration. The company’s layout in cloud, network and security is in advance, and it is expected to form synergy in the follow-up.
Cloud: the company has launched cloud management platform, container cloud platform, big data platform, database service platform and other new products in recent years. We judge that the company aims to supplement the IAAs / PAAS technology territory. Combined with the company’s virtualization technology, it has formed a full stack technology of cloud computing, which can realize unified management, unified operation and maintenance, unified operation from resources to applications and build a self-service system in mixed cloud, multi cloud and other scenarios.
Network: as of March 2022, Sangfor Technologies Inc(300454) has deployed nearly 40 pop point services around the world, covering the most important first and second tier cities in China, with a total bandwidth of more than 150g, serving more than 200000 online users, and processing more than 10 billion network requests per month.
An: according to IDC data, the company’s “big single product” market share is leading. In recent years, it has transformed to cloud security and launched cloud security products such as SASE, cloud XDR and MSS to lead the development of the industry.
Synergy 1: as the integrator of “cloud, network and security” technology, managed cloud aims to provide small and medium-sized customers with a safe, simple and smoothly expanded cloud; We judge that in the era of hybrid cloud, the hybrid cloud with the same architecture combined with managed cloud and super integration is expected to enter customers, and the two form a synergistic effect; Full stack technology can be provided to head customers in the form of products or services to empower operators.
Collaboration 2: the desktop cloud is linked with zero trust to provide a lightweight, good experience, safe and reliable digital secure office platform to meet the needs of high security and polymorphic mixed office such as remote and outsourcing. For scenarios with general security requirements, SASE and intranet security access service jointly provide fast and easy deployment solutions to meet the needs of partners’ access to intranet services, multi branch access to headquarters services, multi cloud access rights management and other scenarios.
Synergy 3: in recent years, the company has signed strategic cooperation agreements with leaders in the subdivided fields such as Winning Health Technology Group Co.Ltd(300253) , Dhc Software Co.Ltd(002065) , B-Soft Co.Ltd(300451) , Sunyard Technology Co.Ltd(600571) , Kingdee, Shenzhen Das Intellitech Co.Ltd(002421) , Meiyun smart number, etc., combined with the advantages of the company in “cloud, network and security” and the advantages of partners in the application end, to improve the integrated delivery and automatic operation and maintenance capabilities, and provide customers with simple and easy-to-use digital capabilities and rapid empowerment.
High investment and equity incentive affect profit performance, cash flow and contract liabilities perform well to ensure the implementation of the strategy
In 2021, the company continued to increase R & D investment, with R & D expenses increasing by 38.34% year-on-year, and the proportion of R & D investment in revenue rose to 30.68%, an increase of 3 percentage points over the same period last year. Sales expenses increased by 27.91% year-on-year, higher than the growth rate of revenue. The increase in R & D and sales expenses combined with the increase in share based payment expenses caused by the equity incentive plan affected the company’s profit performance.
Cash flow and contract liabilities performed well. The company’s operating cash inflow was 8.704 billion yuan, a year-on-year increase of 24.71%. The contract liabilities of the company increased from 721 million yuan at the beginning of the year to 1.157 billion yuan, with a net increase of 436 million yuan. At the time of the company’s “cloud and service” transformation, the profit is affected by high investment, and the revenue is affected by subscription and service. Cash flow and contract liabilities are important observation indicators and important guarantee and specific performance for the implementation of strategic transformation.
“Strategic leadership, accurate tactics and efficient implementation” constitute a dynamic moat. The growth rate is expected to return, and the share price has been cost-effective
Cloud computing has brought revolutionary changes to the whole industry. The track where the company is located has fast technological innovation, high ceiling and far from the end. Only “change” remains unchanged.
Strategic Leadership: since its establishment, the layout of the company in the fields of network security, super integration and cloud desktop has repeatedly confirmed the strategic vision of the management. This “cloud and service” transformation is more breakthrough: from “following” to “leading”, and from product company to platform company.
Tactical accuracy: we believe that the tactical strategy of “all channels, deep cultivation of long tail customers, advance and retreat with partners” is the key to the rapid growth of the company over the years. Based on the existing advantages of the company, this transformation is expected to open up new growth space by expanding the ISV ecosystem and expanding customers above the waist.
Efficient execution: we believe that “equality, simplicity, joint entrepreneurship and strong combat effectiveness” have been integrated into the company’s blood and belong to the company’s core competitiveness. This transformation emphasizes implementation and reform, exercises the ability of the company’s operation and channel system to adapt to new changes and meet new challenges, and lays a solid foundation for long-term sustainable development.
Compared with the previous “expanding new products”, the transformation of “cloud and service” requires more time for market cultivation and system running in. We judge that the founder personally ends up to show the company’s strategic determination. At the same time, it is conducive to unifying ideas, allocating resources, forming joint forces at multiple levels of strategy, tactics and implementation, and the growth rate returns to the expectation.
Investment advice
Based on the company’s annual report and other factors affecting revenue recognition, we lowered the company’s revenue forecast of 11.3/15.3 billion yuan for 22-23 years to 9.138123.15/16.672 billion yuan for 22-24 years; The forecast of earnings per share (EPS) of 3.66/4.90 yuan in 22-23 years was lowered to 1.87/3.03/4.84 yuan in 22-24 years, corresponding to the closing price of 99.4 yuan / share on April 19, 2022, and PE was 53.3/32.8/20.5 times respectively. Based on the industrial trend, the company’s growth history, cash flow and contract debt performance, the company is firmly optimistic about the transformation journey of the company. In the long run, the current stock price has been cost-effective and maintains the “buy” rating of the company.
Risk tips
1) the epidemic has led to the decline of enterprise IT budget; 2) The intensification of industry competition leads to the decline of profitability; 3) The progress of core technology breakthrough is lower than expected; 4) The promotion process of new products is not as expected; 5) Loss of core talent team of the company.
