【Company Research】Ming Yuan Cloud (909 HK) – SaaS growth outlook intact, upgrade to BUY

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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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%).
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