1H22 results impacted by higher costs
- We believe AsiaInfo Technologies’ (AsiaInfo) 1H22 results were affected by delays in project implementation and delivery.
- AsiaInfo is expected to report total yoy revenue growth in the low double digits in 1H22, which is still in line with our forecast of 12% yoy growth for full-year 2022.
- 1H used to account for about of 40% of total revenue for the full year, but with lower profitability. The higher costs incurred had a big impact on overall profitability.
- We lowered our net profit forecasts for 2022F–2023F to factor in higher operating expenses.
- We reiterate our ADD rating, with a lower target price of HK$16.75, based on 16x 12- month rolling P/E (vs 16x 2022F). Our target P/E multiple remains unchanged.
1H22 results expected to be affected
AsiaInfo’s 1H22 operating performance was affected by delays in project implementation and delivery because of the COVID-19 outbreak. This is in line with our forecast of 12% yoy growth for full-year 2022. It is expected to report total yoy revenue growth in the low double digits in 1H22, which is still in line with our forecast of 12% yoy growth for full-year 1H used to account for about 40% of total full-year revenue, but with lower profitability. The higher costs incurred had a big impact on overall profitability in 1H22, but we expect the negative impact to fade in 2H22 and overall profitability to improve.
Short-term headwinds shouldn’t affect long-term growth prospects
We believe that AsiaInfo’s long-term growth prospects remain intact despite near-term headwinds, such as the impact of the lockdowns and softer-than-expected economic growth. Its “three new businesses” – DsaaS, OSS and vertical industries, and enterprise cloudification – are expected to drive overall growth of AsiaInfo. Recall that revenue from the “three new businesses” reported 101.0% yoy growth and accounted for 22.7% of total revenue in 2021. We expect the “three new businesses” to report faster yoy growth (vs. overall revenue growth) in 1H22, given strong growth in its order backlog in 2021. AsiaInfo’s vertical industry and enterprise cloudification business is expected to deliver solid growth in the next several years, given its strategic focus on five key industries: government affairs, finance, postal services, transportation and energy. Its R&D expenses to revenue ratio is expected to remain at a high level (14–16%) to support the growth of the “three new businesses”, and continuous R&D investment is expected to support growth in the medium-long term.
Revision of our net profit forecasts and TP
We cut our net profit estimates for 2022F, 2023F and 2024F by 21.6%, 3.8% and 3.8%, respectively, after factoring in higher operating expenses, especially in 1H22. We believe that the recent share price weakness was due to: a) weak market sentiment, and b) selling pressure due to expectations of softer-than-expected 1H22 results. We believe that the recent correction may offer a revisit opportunity and that the post-1H22 results announcement could be a good buying opportunity, as management will release guidance for 2H22. We reiterate our ADD rating, with a lower target price of HK$16.75, based on
16x 12-month rolling P/E (vs. 2022F P/E). Our target P/E multiple remains unchanged.