(Original title: HKUST News responds positively to the market questioning the limited income from government subsidies)
Tong Yu
On October 19th, at the quarterly news conference of HKUST News (002230), Liu Qingfeng, senior vice president of President of HKUST News, and Tao Jiangtao of the Board of Directors, responded positively to the market's business model and profitability of HKUST. Questioned on the company's third quarter report and the company's "platform + track" artificial intelligence development strategies and other issues involving the interaction with more than 100 investors.
Since the beginning of this year, HKT Telecom’s share price has risen fiercely. On August 28, the highest share price reached the highest peak of 64.77 RMB/share, which has more than doubled from the beginning of the year. From August 29th, the market's rumblings came up one after another and the company's stock price entered the adjustment phase. On October 16-18, before the release of the three quarterly reports, HKUST’s share price dropped for three consecutive trading days, and its market value evaporated 10 billion yuan.
The decline in earnings still "above expectations"
In the first three quarters of this year, HKUST’s cumulative operating revenue was 3.386 billion yuan, an increase of nearly 60%. Net profit totaled 169 million yuan and fell by nearly 40%. The net cash flow from operating activities was -614 million yuan, a decrease of 84.93 from the same period of last year. %. Looking at the three quarterly reports, the data was "not beautiful enough." However, a brokerage analyst who has long tracked HKUST’s securities brokerage told reporters that compared with the semi-annual report, “the third-quarter results exceeded expectationsâ€, confirming that in the semi-annual performance exchange conference, HKUST’s management team’s “accelerating AI industry†Landing" view. For example, he said that in the third quarter, operating income of 1.284 billion yuan, an increase of 89.11%; gross margin rose to 50.98%, after deducting non-recurring gains and losses quarterly profit of 42.377 million yuan, an increase of 22 times. Affected by the third quarter profit growth rate, in the first nine months of this year, HKUST reported a 34.59% increase in net profit after non-inclination.
Liu Qingfeng also said that the situation in the third quarter exceeded expectations. The company originally expected that the fourth quarter of this year, the latest to the first quarter of next year will appear "R & D and market investment and sales revenue growth will form a healthy match" situation, but "now three quarters in advance of a good situation." Since the beginning of this year, the company’s operating income and gross profit margin have been growing at a rapid rate. The gross profit rate has been particularly noticeable. From the first quarter to the third quarter of this year, the quarterly gross profit of the products of HKUST’s products increased from 38.4% to 53.5%, respectively, to 100.8%.
“After the release of the three quarterly reports, the company’s operating cash flow situation is the highest concern among investors.†Jiang Tao said at a glance when introducing performance. The negative operating cash flow was mainly due to the company’s increased investment in artificial intelligence strategy and increased business scale. Therefore, the amount of operating expenses such as payment of payment and employee compensation will increase. However, in the first three quarters of this year, sales receipts and net operating cash flow gradually increased, and positive cash flows were realized in the third quarter.
Regarding whether the large amount of accounts receivable can be recovered, Jiang Tao said that the total amount of customers involved in accounts receivable is strong. At the end of the period, among accounts receivable of 2.87 billion, industry customers accounted for 50.58%, and financial institutions and operators accounted for 13.10. %, accounts receivable accounted for 17.92% of large enterprises, 18.40% of the remaining SME customers, and more stable and long-term business partners. According to Jiang Tao's data, the proportion of bad debts for the period from January to September this year was 0.01%. The year-on-year growth rate of receivables in the first three quarters of 2017 (49%) was less than the increase in revenue during the same period (89%).
Liu Qingfeng said that the rapid growth in sales revenue and gross profit margins proves that the business development of the company is in a healthy state and that the income obtained should be invested more in future development. He said that HKUST will continue to increase investment in the fourth quarter, and that HKUST shall be a “friend of timeâ€.
Facing the market analysis
At the investor exchange meeting, before investors even “difficultyâ€, HKUST News made four major questions that the current market has questioned the company and answered it clearly.
Question one: "In the past 10 years, sales of the company have increased 15 times, but most of the growth has been bought growth." HKUST News said that HKUST’s flight is based on an endogenous growth model. There have been four major acquisitions (merger statements) since its listing. In 2013, it invested RMB 480 million in the acquisition of Qiming Technology, and in 2014 it acquired Shanghai Ruiyuan; in 2016, it acquired Xun Feicheng and Hezhizhixing. In the first three quarters of this year, the share of M&A companies accounted for only 14.60%, and the gross profit of M&A companies accounted for only 14.61% of the HKUST. The company proposed the concept of "endogenous mergers and acquisitions," saying that the merger and acquisition company's business was seamlessly integrated into the product system, and the business sector was quickly replenished. At the same time, the merger and acquisition business was better integrated with the development of artificial intelligence core technology and improved. Product competitiveness also has a good role in promoting.
Question two: "Bat and other past customers have become rivals, and the business model of HKUST has had to adjust from 2B to 2C." HKUST said that BAT has invested in voice and artificial intelligence for many years. Taking Baidu as an example, in 2012, Baidu released a voice product. In 2013, Baidu opened an online platform. In 2014, Wu Enda joined Baidu. From this perspective, there has always been competition. On the other hand, BAT is also buying voice products from HKUST every year. The company's revenue from BAT has not decreased. In the past three years, the revenue from BAT accounted for only 0.2% of the average. From January to September this year, the income from BAT increased to 0.32%.
Question 3: HKUST’s profitability depends on its associated operators. HKUST News said that the company and the three major operators all have in-depth strategic cooperation relationships. In the first three quarters, the three major operators from China Mobile, China Unicom and China Telecom accounted for 16.06% of total revenue, of which mobile accounted for 10.8. %, Unicom accounted for 2.19% and telecommunications accounted for 3.07%. The business volume of the three operators in the company basically matches the market share of the three companies in the national market. As the largest shareholder of HKUST News, China Mobile did not specialize in the news of HKUST.
The most questioned question in the market is: HKUST’s XF has been supported by government subsidies for successive years. HKUST said that the government subsidy obtained by the company is related to the company’s continuous R&D investment. In the first three quarters of 2017, the R&D investment was 792 million, which was 23.38% of the relative operating income; in the first three quarters of 2017, the government subsidized 101 million, accounting for only 3% of the company’s operating income. In the first half of the 100 million government subsidy, the software VAT refunds 43.20 million, and the government's other subsidies are 57.07 million. Software VAT refund is a national policy. Tax refunds are provided for all software technology development companies that sell their self-developed and manufactured software products. This is not specifically for the assistance of HKUST. The 57.07 million other government grants are not enough than the 792 million invested in R&D.
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