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ChinaSoft International Limited (HKSE: 354).

21 August 2018

Interim Results Announcement for the Six Months Ended 30 June 2018

Management Discussion and Analysis

Key Operating Data

During the first half of 2018, the Group's businesses achieved high growths. The revenue, service revenue, profit for the period, profit attributable to the owners of the Company, and EPS increased by 16.1%, 17.9%, 48.0%, 46.2%, and 44.9% YoY.

GENERAL OVERVIEW

For the first half of 2018, the Group accelerated its global service layout with its cloud driven digitalization services and achieved positive progresses in different business lines. In 2018, the Group ranked 7th in the latest "Top 100 Most Competitive Chinese Software Enterprises" (and continues to climb in rankings), and became the backbone of China's software and ITS development. It plays a leading role in industrial innovation and transformations of government and enterprise customers.

During the reporting period, the Group continued its in-depth partnerships with large customers including Huawei, HSBC, Tencent, Ping-An, and etc.. Through its "zero distance" innovative service, the Group understood its customers' demands better, improved its management capabilities, and increased quality and delivery efficiencies. Furthermore, the Group combined cloud services with its Internet platform to provide Chinese and global enterprises with more capabilities, values, and more smart technologies, creating a new ecosystem in the digital world. During the reporting period, the emerging business, largely represented by JointForce, cloud and big data businesses, achieved high growth. The revenue of the emerging business was RMB741.655 million and accounted for 15.4% of the total revenue, representing a YoY growth of 95%. Through the accelerated implementation of the transformation strategy, the Group's revenue structure and profitability improved during the reporting period. The new generation cloud driven, platform IT enterprise's value will continue to blossom.

During the reporting period, JointForce continued to enrich its services, upgrade its business model, and accelerated the growth of its servicing capabilities. JointForce now covers over 400 cities (districts and counties). The volume of the work posted in the first half of 2018 was RMB1.2 billion. JointForce has established a cloud ecosystem focusing on software development. During the reporting period, JointForce launched its "Cloud Integrative Service" solution. This solution, through establishing a cloud integrative service platform, helps the government with IT services, including online purchasing services, due diligence for service providers based on enterprise big data. This solution is in operation in Nanjing, has reached a pilot phase in Xi'an, and reached a strategic agreement with the Zhejiang government. Furthermore, JointForce's "Cloud Integrative Service" team has penetrated the top 50 GDP cities in the country and helped over tens of thousands of software service providers undergo digital due diligence, completing precision profiling. During the reporting period, "Cloud Software Parks" continued its fast promotion in Zhejiang, Shandong, and other provinces, while marking its presence in Jiangsu, Shandong, Hubei, Anhui, Chongqing, Zhejiang, Fujian, and other provinces. In these regions, JointForce ecosystems are beginning to form. Adhering to the "China Manufacture 2025 Core Integrator" initiative, JointForce formed strategic partnerships with the both domestic and international wellknown enterprises, research institutes, and governments. The partnership will aggregate intelligent manufacturing's innovative resources and results, and together push towards the development of China intelligent manufacturing upgrade. JointForce will use the "Honeycomb" industrial Internet platform as a vehicle, build a service platform around the intelligent upgrade requirements of manufacturing enterprises, and promote the transformation and upgrading of manufacturing enterprises.

During the reporting period, the cloud business grew steadily, and the Group's cloud service capabilities improved significantly. The Group successfully expanded its Huawei Cloud and Tencent Cloud business scope. The Group's partnership with Huawei in software development, cloud solutions, cloud services, and etc. continued to be strengthened, and the business volume grew rapidly. The Group was recognized as "Huawei Cloud's Best Partner". Through Tencent Cloud's Independent Service Vendor (ISV) verification, the Group received Tencent Cloud's subcontracting channel. The enterprise cloud disk product's performance achieved industry leading position, and expanded its business to Southeast Asia, Africa, and etc.. The Group introduced Azure-based mature cloud service capabilities and formed joint international teams in China, America, and India. The Group established serving capabilities, solutions allowing Microsoft products to be hosted on Huawei cloud, and realized a global cloud servicing layout.

During the reporting period, the Group's big data business continued to expand and consolidate its industry advantages by implementing its in-depth industry-based solution strategy. The Group won several iconic big data projects in finance, government, airports, transportation, and other industries.

In the future, with new opportunities provided by digital china and its transformation, the Group will further penetrate the government and enterprise market, through the Jointforce platform, export new technologies, establish new businesses, build new ecosystems, and create new capabilities. The Group will fully utilize its cloud services and IT design capabilities to continue to upgrade its business model and optimize its revenue structure. The Group will continue to become a global ITS leader with comprehensive strengths and innovative capabilities.

Since listing on the GEM board in 2003, the Group has maintained high revenue and service revenue growths, recording a CAGR of 33.3% and 43.2% from 2003-2017. For the first half of 2018, the revenue and service revenue achieved YoY growths of 16.1% and 17.9%. The details are as follow:

Revenue

For the first half of 2018, the Group's revenue was RMB4,813.853 million, representing a YoY growth of 16.1% (2017H1: RMB4,145.060 million). The Group's service revenue was RMB4,770.267 million, representing a YoY growth of 17.9% (2017H1: RMB4,047.248 million). The growth came mainly from the core big customers, and the high growths of emerging businesses including cloud, big data, and Jointforce.

Cost of Sales

For the first half of 2018, the Group's cost of sales was RMB3,423.801 million, representing a YoY increase of 14.0% (2017H1: RMB3,002.387 million). The Group's cost of sales was 71.1% of the Group's total revenue, representing a YoY decrease 1.3% (2017H1: 72.4%).

Gross Profit

For the first half of 2018, the Group's gross profit was RMB1,390.052 million, representing a YoY growth of 21.6% (2017H1: RMB1,142.673 million). The Group's gross margin was 28.9%, representing a YoY increase of 1.3% (2017H1: 27.6%). The Group's gross margin (to total service revenue) was 29.1%, representing a YoY increase of 0.9% (2017H1: 28.2%). The main reason for the increase of the gross margins is because of the increase of revenue (and proportion to total revenue) from the emerging business, which has a higher gross margin comparing to that of the traditional businesses.

Other Income

For the first half of 2018, the Group's other income was RMB18.945 million, representing a YoY decrease of 42.2% (2017H1: RMB32.766 million). The main reason for this decrease is because of the decrease of government subsidies.

Other Gains and Losses

For the first half of 2018, the Group's other income was RMB3.737 million, representing a YoY increase of 235.8% (2017H1: RMB1.113 million). The main reason of this increase is because of the fluctuations in the exchange rate of the US dollar, Japanese yen, and Hong Kong dollar against the RMB during the reporting period.

Operating Expenses

For the first half of 2018, the Group's selling and distribution expenses were RMB233.003 million, representing a YoY increase of 58.6% (2017H1: RMB146.944 million). The Group's selling and distribution expenses accounted for 4.8% of the revenue, representing a YoY increase of 1.3% (2017H1: 3.5%). This increase is because during the reporting period, the Group increased its sales channel in the tier one cities for the government and enterprise market. Furthermore, the Group increased its oversea coverage and increased oversea sales and market investment.

For the first half of 2018, the Group's administrative expense was RMB679.967 million, representing a YoY increase of 3.1% (2017H1: RMB659.774 million). The Group's administrative expense accounted for 14.1% of the revenue, representing a YoY decrease of 1.8% (2017H1: 15.9%).

Finance Costs and Income Tax

For the first half of 2018, the Group's finance costs was RMB59.290 million, representing a YoY increase of 37.7% (2017H1: RMB43.064 million). The Group's finance costs accounted for 1.2% of the revenue, representing a YoY increase of 0.2% (2017H1: 1.0%). The main reason for this increase is because of the increase in the actual interest on the convertible loan notes during the reporting period.

For the first half of 2018, the Group's income tax was RMB32.618 million, representing a YoY increase of 17.9% (2017H1: RMB27.656 million).

Other Non-Cash Expenses

For the first half of 2018, the Group's amortization of intangible assets was RMB36.641 million, representing a YoY decrease of 12.3% (2017H1: RMB41.759 million). The Group's amortization of intangible assets accounted for 0.8% of the revenue, representing a YoY decrease of 0.2% (2017H1: 1.0%).

For the first half 2018, the Group's allowance for doubtful debt was RMB0.145 million representing a YoY decrease of 89.7% (2017H1: RMB1.401 million). The Group's allowance for doubtful debt for the interim period was provided specifically with reference to the collectability of trade receivables. At the year end, the allowance for doubtful debt will be adjusted with reference to the collectability and aging analysis of trade receivables.

Profit for the Period and Earnings Per Share (EPS)

For the first half of 2018, the Group's profit was RMB355.805 million, representing a YoY growth of 48.0% (2017H1: RMB240.445 million). The Group's profit accounted for 7.4% of the revenue, representing a YoY increase of 1.6% (2017H1: 5.8%). The Group's profit accounted for 7.5% of the service revenue, representing a YoY increase of 1.6% (2017H1: 5.9%).

For the first half of 2018, the Group's profit attributable to the owners of the Company was RMB358.759 million, representing a YoY growth of 46.2% (2017H1: RMB245.470 million).

Based on the profit attributable to the owners of the Company, the Group's EPS was RMB14.87 cents for the first half of 2018, representing a YoY growth of 44.9% (2017H1: RMB10.26 cents).

http://www.chinasofti.com/en/investor/announcement/2018/LTN20180821836.pdf
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Title Annotation:Leading Companies
Publication:China IT
Geographic Code:9CHIN
Date:Apr 25, 2019
Words:1716
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