Decent 1H22 results despite the challenging environment
DC Holdings released its 1H22 results earlier, which were decent despite the challenging environment. The 1H22 results also reaffirm our view that the Company’s business transformation has driven its operating performance.
We continue to expect DC Holdings to deliver consistent growth (both revenue and net profit) in the coming years compared to its volatile record before 2021.
We reiterate our ADD rating with a target price of HK$8.00, based on 20x 2021F P/E. The target P/E multiple is in line with its five-year historical average.
1H22 results highlights
Despite the challenging environment in 1H22, DC Holdings continued to deliver stable results. The Company’s total revenue in 1H22 amounted to HK$8.682bn, gross profit was HK$1.542bn, and net profit was HK$222m. Both revenue and net profit were stable, up 0.1% and 0.7% yoy, respectively. The Company declared an interim dividend of HK0.023 per share for 1H22, up 15% yoy, which will be payable on 13 Oct 2022. Driven by the Company’s big data strategy and benefiting from government policy tailwinds, DC Holdings’ big data business achieved strong growth in 1H22. Revenue from big data products and solutions amounted to HK$1.181bn, up 50% yoy, and gross profit amounted to HK$449m, up 56% yoy. The Company’s big data products, which were further enhanced, have a gross profit margin of 83%. DC Holdings added 143 software copyrights and patents, for a total of 2,392 intellectual properties. In addition to expanding its own portfolio, DC Holdings has led and participated in the drafting and creation of industry standards covering data fusion, digital twin, smart cities and fintech. DC Holdings adheres to a customer-centric approach to capitalize on total customer life cycle value, improving customer stickiness and gaining market share, whilst also pursuing quality customer acquisitions. In 1H22, DC Holdings’ top 30 largest customers by revenue accounted for 47% of total revenue, for a compound annual growth rate of 79% over the past two years, and the number of large customers reached 120, representing a compound annual growth rate of 12%. Furthermore, supply chain customers continued to contribute to DC Holding’s revenue in 1H22, with net dollar retention of 111%, representing a quality, sticky base of customers. The total number of new customers stood at 1,648, representing an increase of 20%. In 1H22, revenue from the core sectors, including technology, financial, consumer and government, accounted for 45%, 27%, 14% and 7%, respectively.
Business transformation on track
DC Holdings has undergone a transformation by a) rebalancing its enterprise and government client portfolios, b) improving its client retention rate, and c) increasing its margins. Its 1H22 results reaffirm our view that its business transformation has begun to bear fruit and will support its future development. DC Holdings has been developing into a data-driven technology company with its own proprietary intellectual property and technology, allowing it to deliver comprehensive services to its government and enterprise clients. We still expect DC Holdings to deliver consistent growth (both revenue and net profit) in the coming years compared to its volatile record before 2021. DC Holdings had an order backlog of HK$7.177bn at the end of 1H22, which will support the Company’s performance in 2H22.
Reiterate ADD with an unchanged target price
We maintain the view that new business developments will drive a rerating of DC Holdings. We reiterate our ADD rating with a target price of HK$8.00, based on 18x 2022F P/E (down from 20x). We believe that DC Holding’s proven management team will continue to create an entrepreneurial culture within the Company and increase its human capital efficiency and capability.