Digital China (000034) 2019 First Quarterly Report and Significant Events Comment: Operating Cash Flow Improved, Target Net Profit CAGR Over 20% Over Next Three Years

Digital China (000034) 2019 First Quarterly Report and Significant Events Comment: Operating Cash Flow Improved, Target Net Profit CAGR Over 20% Over Next Three Years
Core Views The company released the 2019 first quarter report and equity incentive plan. The revenue / net profit / OCF of 2019Q1 were 217 respectively.55/1.36/2.6.5 billion, previously +37.8% / + 22.2% / + 273.4%, operating cash flow improved.Equity incentives are extensive, and the target net profit margin will increase by 20% / 45% / 75% in the next three years.Maintain 2019 EPS forecast to 1.01/1.22/1.42 yuan, giving 18 times the 2019 PE, corresponding to a target price of 18.1 yuan, maintain “Buy” rating.  Steady revenue and gross margin decreased slightly, and operating cash flow increased significantly.The company’s 2019Q1 business volume has steadily increased, and its gross profit margin has decreased slightly by zero.97 points.Sales / management / R & D expenses are comparable to 2018Q1, with financial expenses + 30% every six months, and the overall expense ratio (2.24%) -0 per second.74pct, -0.47pct, continued from 2016Q2 (5.20%), to some extent, reflects the scale effect of the company’s business.The decrease in expenses was slightly lower than the decrease in gross profit margin, which resulted in lower profit growth than revenue.In addition, the company’s business has a cap, 2017Q1 / 2018Q1 operating cash flow -1.33 / -1.53 trillion, which will turn positive and grow in Q1 2019. The reason is that the company will strengthen its sales-end assessment and payment recovery in 2018H2. It is expected that the future operating cash flow will be sustainable.  Equity incentives help long-term development, and the target net profit ratio in the future will increase by 20% / 45% / 75% in 2018.The incentive involved 3287.50,000 shares (accounting for 5.(03%), and the target for performance evaluation in 2019/2020/2021 is to increase the net profit ranking by 20% / 45% / 75% in 2018.Among them, the stock budget is 27.8 million shares (accounting for 4 shares).25%), 22.25 million shares were granted to 245 core technical / business personnel, 5.55 million shares were converted, and the exercise price was 15.55 yuan; budget stock 507.500,000 shares (accounting for 0 shares.78%), awarded 9 executives and 14 core technical / business personnel, replacing 1 million shares.Equity incentives help the company to mobilize the enthusiasm of the company’s executives / core backbones. The target net profit CAGR in the next three years is over 20%.  The value of channel B is difficult to replace, and cloud services help maintain high growth.The company 杭州桑拿网 cooperates with 80+ mainstream cloud vendors around the world to establish a cloud resource pool that brings together 120+ SaaS / 500 + partners. It has also become the general distributor of Alibaba Cloud and obtained Office 365 resale qualification. It has accumulated more than 600 channel partners.The nation’s largest sales network to B, fully guarantee the development of cloud business.Recently, the pace of domestic and foreign giants turning to the cloud has accelerated, and the trend of domestic enterprises on the cloud has become prominent. We expect that the revenue in 2019Q1 will exceed 300 million, continuing in 2018 (5.800 million) high growth.  Risk factors: The development of cloud computing is less than expected; the landing of equity incentives is lower than expected.  Investment suggestion: The company’s main IT distribution business is stable, and cloud services are expected to continue high growth. We are optimistic about the company’s equity incentive implementation and the value of channel B.Maintain 2019/2020/2021 EPS forecast to 1.01/1.22/1.42 yuan, 18 times the target PE for 2019, corresponding to a target price of 18.1 yuan, maintain “Buy” rating.