Cinda Securities: Gave iFLYTEK a buy rating with a target price of 51.0 yuan

2022-05-05Feng Cuiting of Cinda Securities Co., Ltd. conducted a study on iFLYTEK and released a research report "First Coverage Report: "Platform + Track" Deeply Cultivates Downstream Application Scenarios, AI2.0 Strategic Focus on Large-scale Landing", this report gives a buy rating to iFLYTEK, believing that its target price is 51.00 yuan, the current stock price is 37.06 yuan, and the expected increase is 37.61%.

iFLYTEK(002230)

Platform + track layout downstream application scenarios, education, open platform and consumers are the main growth drivers. The company takes the core technology of artificial intelligence as the support and continues to promote the strategy of "platform + track". In terms of "platform", relying on the iFLYTEK AI open platform, it provides AI capabilities and solutions for developers of the Internet and intelligent hardware to build an industrial ecology; in terms of application "track", it focuses on smart education, smart medical care, smart city, consumer (office), smart car, smart finance and other scenarios. From 2018 to 2021, the company achieved revenue of 79.17, 10.079, 130.25 and 18.314 billion yuan respectively, with a year-on-year growth rate of 45%, 27%, 29% and 41% respectively. The company's net profit attributable to the mother was 5.42, 8.19, 13.64 and 1.556 billion yuan respectively, with a year-on-year growth rate of 25%, 51%, 66% and 14% respectively. From the perspective of growth momentum, the main driving force of the company's revenue growth is education, open platform and consumers, and the revenue in the education field increased from 2.144 billion yuan in 2018 to 6.231 billion yuan in 2021, with a compound growth rate of 42.71%. The revenue of open platform and consumer business increased from 1.707 billion yuan in 2018 to 4.688 billion yuan in 2021, with a compound growth rate of 40.05%. The business revenue of smart city (including smart politics and law and information engineering) increased from 2.732 billion yuan in 2018 to 4.973 billion yuan in 2021, with a compound growth rate of 22.10%.

Focus on the AI 2.0 strategy, enter the period of large-scale ai landing, improve per capita efficiency, and net profit is expected to be cashed. The essence of AI1.0 strategy is exploration, and the essence of AI2.0 strategy is promotion. In 2019, the company launched the AI2.0 strategy, focusing its resources on 8 core product lines such as education, consumers, open platforms, smart cities, and medical care, officially entering the "AI2.0" stage, expanding the application scale, iterating on "algorithm + data", continuously landing products, and entering the dividend cashing period of AI technology scale landing. The company's AI2.0 emphasizes the improvement of quality and efficiency, with the improvement of the company's per capita efficiency, as well as the improvement of product standardization, reflected in the company's operating results, net profit is expected to be cashed. From the perspective of industry development, algorithm + computing power + data continue to break through, AI industrialization has entered an accelerated period, artificial intelligence technology is moving towards a mature production period, and some subdivided technology track industries have crossed the period of rapid growth and entered a period of steady climbing.

Provide support for the base business and establish long-term advantages in the core downstream links. In 2021, the company's "base business" accounted for more than 50% of the total revenue. The evaluation criteria for the business of the base area are the benign dependence of users, long-term operation ability, sustainable growth potential, and industry demonstration value. The business of the base area includes education base area (teaching according to aptitude, personalized learning manual, English listening and speaking test, learning machine B+C), consumer base area (online marketing position, AI marketing), medical base area (general practitioner assistant, family doctor assistant, etc.), smart city base area (Jachuai big data general platform, Anhui General Office, strategic cooperation city), etc. We believe that the current downstream of AI technology services requires deep ploughing in the industry, AI technical experts and industry experts to cooperate, focusing on industry application scenarios, will be the priority strategy in the current market environment; in-depth industry core links, master the industry's Know–how, have customer stickiness, occupy high-quality data, and thus form competitive barriers. iFLYTEK's continuous layout of its business in the base areas for many years has initially formed barriers.

The proportion of C-end products has increased, and the business model has improved. The intelligent hardware of the C-end has gradually formed a perfect product matrix in the education scene and the office scene, and the brand influence and user stickiness are enhanced In the education field, the company has explored the business model of toG/B and then toC. Personalized learning manual, according to the number of subjects opened by each student per semester, the early ToB promotion, the later C-end payment, the business model is actually BtoBtoC. The continuous improvement of the scale and proportion of C-end product revenue is of great significance to improving the company's business model. First, C-end data and services communicate with the G/B side, which helps to accumulate high-quality data and application scenario experience required for AI model training, and helps the entire product system evolve. Second, verify the business model of AI, first build the industry base, and then monetize through products or services on top of AI technology. At present, the company's exploration in the education industry has begun to bear fruit, and the long-term strategy in the future is to continuously expand C-end products in the fields of medical treatment and office. Third, the C-end products have a high degree of standardization and have marginal cost advantages, which is conducive to improving the company's profitability. Fourth, the user stickiness of C-end products in the AI field is high, which can form a more stable business model, and the long-term operation is more stable than the traditional project system.

Profit Forecast and Investment Advice: It is estimated that the net profit attributable to the parent in 2022/2023/2024 will be 19.7/31.5/4.07 billion yuan, EPS will be 0.85/1.35/1.75 yuan, and the corresponding PE will be 44x/27x/21x, respectively. iFLYTEK is a leading manufacturer of AI technology applications in China, and provides solutions to product technologies and solutions through AI+ education, AI+ office, AI+ medical, AI+ medical, AI+ smart city, AI+ automotive, etc. It leads the market share in the education field, office and other application scenarios. There is a lack of companies at home and abroad whose business layout is completely consistent with iFLYTEK, and we have selected SenseTime, Green Deep Pupil, Innovative Qizhi in the field of AI, as well as Yonyou Network, Kingsoft Office and Guanglianda with similar industry status as comparable companies. Considering that SenseTime, Green Deep Pupil, and Innovation Qizhi have not yet achieved profitability, not counting their PE, the average PE of the other three comparable companies in 22 years is 63 times. iFLYTEK has a strong leading attribute in the field of AI applications and has high barriers, giving the company 60 times PE for 22 years, corresponding to a reasonable value of 51 yuan / share, and giving a "buy" rating.

Risk factors: C-end layout is less than expected; market competition is intensifying; the risk of slow market expansion outside the province; the risk of brain drain; the risk of industry policy supervision;

Securities Star Data Center calculated according to the research report data released in the past three years, Guosheng Securities Liu Gaochang researcher team has studied the stock more deeply, the average forecast accuracy in the past three years is as high as 93%, and its forecast for the net profit attributable to 2022 is 1.993 billion yuan, and the forecast PE is 43.09 billion according to the current price conversion.

The latest profit forecast breakdown is as follows:

A total of 27 institutions have given ratings, 22 buy ratings and 5 overweight ratings in the last 90 days; the average target price of institutions in the past 90 days has been 54.65. According to the Securities Star Valuation Analysis Tool, iFLYTEK (002230) has a good company rating of 3.5 stars, a good price rating of 1.5 stars, and a comprehensive valuation rating of 2.5 stars. (Rating Range: 1 ~ 5 stars, maximum 5 stars)

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