Investment Summary

Ming Yuan Cloud announced the company's interim results as of June 30, 2021, benefiting from the steady development of real estate industry in the first half of the year and the rapid growth of the company's SaaS product revenue, the company's revenue reached RMB 970 million (+45% yoy) and its adjusted net profit reached RMB 193.5 million (+32.7% yoy). Among them, SaaS product revenue reached RMB 550 million (+66% yoy), accounting for about 57% of total revenue. The revenue of ERP solutions was RMB 420 million (+25% yoy), accounting for about 43% of total revenue.

CRM Cloud ARPU still has room to increase, Construction Cloud becomes the second largest growth engine

In 1H21, CRM Cloud's revenue reached RMB 430 million (+82% yoy), accounting for 78% of the total revenue of the SaaS business. In 1H21, CRM Cloud's achieved rapid growth in Average Revenue Per User (ARPU) while maintaining a high market penetration rate. The number of property sales offices in China equipped with CRM Cloud 16,200 (+8% yoy), while the ARPU increased from approximately RMB 19,000 to RMB 26,000 (+37% yoy). In the past, CRM Cloud mainly focused on solving the management and process problems of real estate marketing. Since last year, it has developed in the direction of business integration and gradually transitioned to helping developers improve their marketing capabilities. Affected by the government policy and supervision on real estate industry, in addition to reducing expenditure, acquiring customers is a major challenge for real estate industry in the future. Therefore, it is expected that CRM Cloud's will still have a room to increase as helping developers build private traffic. It is expected that with the gradual slowdown of penetration rate growth in the future, there are still room for increase in ARPU which can provide momentum for CRM Cloud's revenue growth.

In 1H21, Construction Cloud's revenue was RMB 79 million (+14% yoy), accounting for 14% of the total revenue of the SaaS business. In 1H21, the number of Construction Cloud's serving construction sites in China was approximately 6,000 (+ 46% yoy). At present, the real estate supply chain industry is still more traditional, with generally low efficiency and information asymmetries, including weak digital empowerment. Therefore, the Construction Cloud focus on the quality of supply and creates entire chain application scenario. It is expected that the Construction chain will break the industry in the next 1-2 years and become a major engine of the company's revenue growth.

In terms of Procurement Cloud, in 1H21, its revenue was RMB 20 million (+ 77% yoy), accounting for 4% if the total revenue of the SaaS business. There were approximately 3,100 property developers and 83,000 suppliers with access to Procurement Cloud respectively. The Existing Market's revenue in 1H21 was RMB 22 million (+ 25% yoy), accounting for 4% of the total revenue of the SaaS business. It is composed of Asset Management Cloud, Property Management Cloud and Commercial Management Cloud. Among them, the total area under management of Asset Management Cloud and Property Management Cloud increased by 113.5% and reached approximately 190 million square meters. Besides, the Company completed its investment in Shenzhen Woxiang Technology Co., Ltd. and the number of Commercial Management Cloud's serving shopping malls increased by 56% to 114.

ERP Solution maintain steady growth

In 1H21, the ERP Solutions revenue reached RMB 421.9 million (+25% yoy). Among it, software licensing and value-added services revenue accounted for 33% and 36% of the total revenue, reaching RMB 140 million and 150 million (+ 38% and 18% yoy). The company further strengthened the development of industry-leading enterprises and sinking markets, as well as enhanced product support service capabilities, strengthened centralized management and provided more value-added service products. Therefore, it is expected that the ERP solutions` revenue will increase steadily.

Company valuation

We maintain our forecasts for the company's revenue and net profit for 2021/ 2022/ 2023, and use the sum of the parts (SOTP) valuation to evaluate the company's two businesses separately. Taking into account the recent SaaS sector valuation callback, we lower the target price-earnings ratio (P/E) for the ERP solution to 20x in 2022 and the target price-sales ratio (P/S) in 2022. The target price given is HKD 42.40, corresponds to a P/S of 30.6x/ 22.0x/ 15.6x, corresponding to 2021/ 2022/ 2023 and the “BUY” rating is maintained.

Financial

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