MYC hosted FY20 investor conference call yesterday. Mgmt. guided 3-year growth targets: 1) SaaS revenue CAGR no less than +50% and 2) ERP revenue CAGR at 15-20%. MYC is set to benefit from property developers accelerating digitalization to boost profitability. MYC share price has corrected over 40% since Feb on SaaS sector de-rating. We think the share price starts to look attractive given solid earnings growth outlook. Raise to BUY.
- FY20 core profit miss on higher commission expense related to SaaS expansion. MYC FY20 revenue grew 35% YoY to RMB1,705mn, largely in-line with our and consensus estimates. However, operating profit missed on higher-than-expected commission to sales channel. Adj. net profit of RMB328mn beat our estimate mainly on higher gov’t grants and forex gain.
- SaaS to maintain +50% YoY growth, NPM turned positive in FY20. FY20 SaaS revenue was at RMB871mn (+71% YoY), beat our prior estimate by 4% mainly on strong CRM Cloud growth (+88% YoY). SaaS GPM declined 4.1 pct pts to 87.1% given increased hardware/ software integration work but NPM turned profitable at 2.1% (vs. -8.2% in FY19). CRM Cloud remained the core driver with revenue contribution increased to 77% of MYC FY20 SaaS revenue. We are positive to see improved renewal rate (90% in FY21 vs. 76% in FY19) and higher ARPU (RMB44.6k per property sales office in FY20, +9% YoY). We expect MYC to deliver 51% FY20-23E SaaS revenue CAGR.
- ERP to maintain stable growth at +15-20% YoY. FY20 ERP revenue was at RMB834mn (+11% YoY), missed our prior estimate by -9%. Mgmt. attributed the miss to COVID-19 that affected large-scale project contract signed in 1H20 and hence service delivery schedule in 2H20. ERP revenue growth in FY21 is expected to rebound back to +15-20% YoY level. We expect ERP segment to maintain steady growth of 17% FY20-23E ERP revenue CAGR.
- Upgrade to BUY. We fine-tuned FY21-22E net profit by -1% to -4% mainly to reflect stronger SaaS growth and higher related commission expense. MYC share price has corrected by 40% from its peak in Feb 2021. We upgrade MYC to BUY from Hold with new target price of HK$44.75, based on lowered 22x (prior 25x) FY22E P/S on SaaS sector de-rating. We believe MYC should be trading at premium given stronger FY20-23E EPS growth (MYC 42% vs. peers 31%).