Danghong Technology: Investigated our company on May 6

On May 6, 2022, Danghong Technology (688039) issued an announcement that it would investigate our company on May 6, 2022.

The main contents of this survey are:

Q: The company's annual report shows that the pan-security revenue has increased significantly, why is the reason for the increase in pan-security revenue in 2021?

A: The company's public security business revenue increased by 79.47%, and the gross profit margin increased by 15.33 percentage points, mainly due to the company's continuous expansion of its own products, covering the aggregation platform from the edge end to the central end, and the industries covered were gradually changed from the original public security to the core industries. The gross profit margin improvement is mainly due to the company's many breakthroughs in products, such as single products to solutions, central end to edge end, underlying algorithm to algorithm + application, pure software to software and hardware combination, and products are more standardized; in addition, the proportion of direct sales in the sales model is getting higher and higher, and the sales of technical services have also increased, and this series of breakthroughs has also made the company's pan-security products more competitive. Now the company is more with a full set of product output, software products account for more and more, the gross profit is higher. The increase in pan-security revenue in 2021 mainly comes from the landing of rail transit projects and other public safety solutions.

Q: What is the company's expected cost investment in 2022? What are the personnel going to hire?

A: The company has been continuously investing in research and development, and is also incubating new directions and application scenarios, and the growth of personnel mainly comes from the increase of R&D and technical personnel, and the increase of industry channel expansion personnel. Among them, research and development mainly focuses on the increase of the original underlying video algorithm personnel and the need for industry depth after expanding into new industries to further improve the stickiness of products and the industry and the connection with the industry's own business. Recruitment will continue to increase in 2022.

Q: What are the main directions of the company's future business increments?

A: Danghong is a technology company that does video and algorithms, video is not industry-specific, where there is video, where there is a screen, where there is a camera, you can use Danghong's technology and algorithm. In addition to continuing to deepen and increase technical barriers in video-related directions such as IPTV new media, 4K/8K ultra-high-definition video, Internet video, telecom operators, and 5G applications, it also extends and pilots business in other video application areas, such as public security, justice, education, medical care, finance, mining, towers, energy, high-speed rail and urban rail transit. In terms of ultra-high-definition, it is mainly the construction of 4K/8K ultra-high-definition channels, the 8K live broadcast of outdoor large screens, and the construction of ultra-high-definition video industrial parks/bases, or telecom operators and Internet video; in the direction of 5G edge computing, 5G as the most eye-catching driver engine in the construction of new infrastructure, for 5G, communication network construction and innovation is the key driving force to promote the landing of 5G applications, and edge computing is the core gripper that leverages the 2B industry change in the 5G era. The company's technology can connect the video front-end-center-edge end, and the bottom-operation layer. Companies are also incubating more industries and directions based on more underlying technologies and new business scenarios.

Q: What kind of business opportunities will the advent of the meta-universe era bring to the company? Does the company cooperate with the company on the C-end of VR glasses?

A: At present, the "meta-universe" related industries are still in the early stage of development, and the company pays close attention to new trends and new opportunities in the development of the industry. The company has been having a relatively complete VR coding solution for many years, and has corresponding technical reserves in AR, XR, naked-eye 3D, and holographic technology. In terms of VR, the company focuses on providing FOV encoding, transmission, terminal rendering and other technologies; on the other hand, it also provides low-latency high-density video encoding, transmission, terminal adaptation technology. When Hong has a corresponding R & D team to continue to research in the field of VR, the future VR overall industry chain is more mature, the company's corresponding technology can be implemented into the corresponding software / hardware. The company has a "VR panoramic video processing solution" product, providing users with a full-service VR panoramic video processing solution, including VR panoramic video content acquisition, synthesis, rendering, production, broadcast, distribution and playback and other important links. At present, the landing of VR direction focuses on fields such as VR government affairs, VR virtual museum, VR cloud tourism, VR cloud games and so on.

Q: In the first quarter, the company signed a product sales contract with Yichao (Asia Pacific) Co., Ltd. on the "Arab TV Station Video Processing Technology System Procurement Project", what is the follow-up situation, and when will it be implemented? Have you expanded to other overseas customers?

A: The "Arabian Television Station Video Processing Technology System Procurement Project" signed a contract in January 2022 and is currently in the process of supply and installation, and will be accepted and delivered according to the time period agreed in the contract. The company's expansion of overseas customers is continuous, and overseas business will serve as a new growth direction.

Q: Does the company intend to issue convertible bonds to unspecified targets to alleviate the liquidity problem.

A: The company currently has sufficient liquidity, and will consider accordingly according to the company's operational needs in the future. If any relevant matters touch the information disclosure standards, the company will strictly comply with the relevant laws, regulations and regulatory requirements to fulfill the information disclosure obligations.

Q: The company's cash flow inflow in the first quarter of 2022 has a positive trend, why is the overall cash flow outflow more?

A: The cash received by the company from the sale of goods and the provision of services in the first quarter of 2022 increased by 147.40%, and the sales collection in the first quarter was better than that in the first quarter of 2021; the increase in cash flow outflow mainly included: 1) in order to cope with the increase in raw material prices and supply difficulties, the company's advance purchase volume increased; 2) in order to cope with the delivery of orders in hand, especially for some larger projects, the advance payment for hardware procurement increased.

Q: The company mentioned in the R&D project of the 2021 annual report "the research and development of next-generation immersive cockpit entertainment middleware", please specifically introduce the company's new business Intelligent Connected Car In-vehicle Entertainment Business What specific products are included? How far is the business progressing so far?

A: Danghong has always had a deep technical accumulation in video frame-level processing, multi-screen synchronization, streaming video playback, video ultra-low latency and other technologies. At present, the trend of multi-screen and entertainment in the car is obvious, the company mainly focuses on the direction of the on-board intelligent entertainment cockpit, and the current products include multi-screen frame-level synchronization for video, video atmosphere light effects and other VR and AR solutions, and also incubating multi-scene solutions such as multi-vehicle sharing, multi-vehicle interaction, drone and in-car linkage. At present, the business is continuing to land.

Q: What were the main reasons for the first quarter from profit to loss? What are the forecasts for the next quarter?

A: The main reasons for the company's profit to loss in the first quarter are as follows: (1) The company's media and culture revenue increased in the first quarter, but the revenue of public security business declined year-on-year, and the gross profit margin fell by 8.74 percentage points; the impact of the epidemic in the first quarter was relatively large, especially the impact on the implementation and acceptance of the project. (2) In the first quarter, R&D personnel increased more than the same period of the previous year, and R&D investment increased by 30%. (3) The use of idle funds to purchase bank wealth management products decreased during the reporting period, resulting in a decrease in interest income. The company will actively promote business progress, and the next quarter will also depend on the external environment and customer conditions.

Q: How much revenue is in the Winter Olympics project, and whether the revenue recognition time is in the first quarter of this year.

A: The holding of large-scale sports events is a catalyst for the acceleration of technology. The Winter Olympics have promoted the further application of 8K ultra-high-definition video technology, while the epidemic has also spawned the habit of live video and online viewing. In the short term, we mainly serve customers in the form of projects, and the products provided are incremental in the performance of the company. In the long run, with the commercial use of 5G and the advancement of video technology, ultra-high-definition live broadcasting and production of events have become the norm, and AI empowerment can provide disruptive audio-visual services for the audience. The company's TV station/IPTV/Internet video/operators and other customers will have expansion, new construction and some new software and equipment needs due to large-scale events. The purchased products are not only for a race, but will be reflected in the daily business procurement. Revenue was recognized in both 2021 and 2022.

Q: In the 2021 annual report, the operating cost of pan-security products increased by 34.68% over the previous year, and the operating cost of technical services increased by 62.53% over the previous year.

A: The company's 2021 annual pan-security business revenue increased by 79.47%, operating costs increased with the increase in revenue, gross profit margin increased significantly, the company continued to expand pan-security software products, covering from the edge end to the central end of the convergence platform, while covering the industry from the original public security gradually to the core industries. The operating cost of technical services increased over the previous year, on the one hand, the growth of technical service revenue, on the other hand, the increase in CDN and personnel costs related to technical services.

Q: In 2021 and the first quarter of 2021, the company's R&D investment has increased significantly, mainly focusing on the increase in the number of underlying video algorithm personnel and the expansion of new industries. Can you tell us which industries will be deeply cultivated? How do you plan to monetize your technology?

A: The company will continue to deepen its cultivation in the direction of media culture, pan-safety and intelligent networked vehicles. The media culture is dominated by ultra-high definition, and the current focus is on: 1) radio and television such as CCTV and various provincial satellite televisions, IPTV, Internet video and operators; 2) ultra-high-definition video industrial park, which is mainly promoted by the government, and also accelerates the landing of ultra-high definition; 3) Internet video + operators, the business is relatively stable; 4) overseas business, accelerated in 2022, the future overseas market is also continued to develop, but also the business growth point in the future period. Pan-security direction, the company to the public security industry as the entry, this industry has high requirements for products, the past two or three years the company has completed from the central end to the edge of the product improvement. At present, all walks of life such as power grids and coal are promoting the process of intelligence, video is the largest data source in intelligence, and the transmission from the edge end to the central end involves issues such as bandwidth and central end identification. In the past two years, the company has implemented projects involving rail transit, power, finance, energy, energy storage, towers and digital cities, hoping to leverage policies to promote business development. At the same time, the company has been expanding the direction of developing the in-vehicle intelligent entertainment cockpit in the field of intelligent networked vehicles.

Q: In the first quarter, the company signed a large overseas order of 10 million US dollars, please introduce the development plan in the global market? What areas will it focus on? What is the cooperation model?

A: Based on years of technical accumulation in the field of video processing and years of practice in the domestic and large tv stations, head Internet video companies and other major customers, the company is currently in the direction of ultra-high-definition video has been in the leading position in the industry, in recent years has been actively expanding overseas business, the core capability products exported to Southeast Asia, the Belt and Road countries, etc., the future overseas business development will also be one of the focus of the company's media business. In terms of business model, the company mainly goes to sea with integrators and partners to provide Danghong complete solutions and technical services.

Q: The company plans to expand the direction of the in-vehicle intelligent entertainment cockpit in the field of intelligent and connected vehicles, what is the company's current research and development progress? When are products expected to be available? What is the market expectation for this segment?

A: Danghong has always had a deep technical accumulation in video frame-level processing, multi-screen synchronization, streaming video playback, video ultra-low latency and other technologies. At present, the trend of multi-screen and entertainment in the car is obvious, the company mainly focuses on the direction of the car intelligent entertainment cockpit, the current products include multi-screen frame-level synchronization for video, video atmosphere light effect and other VR and AR solutions, but also incubating multi-vehicle sharing, multi-vehicle interaction, drone and in-car linkage and other multi-scenario solutions, some products have been landed. There are various charging modes for the Internet of Vehicles business, including custom development fees, license fees, and joint content operation fees with car manufacturers. The future market situation of this business segment is closely related to the automotive industry, especially the future new energy vehicle market.

Q: Please ask Mr. Sun to introduce the company's development space

A: Video is not divided into industries, where there is video, where there is a screen, where there is a camera, there is room for the development of Danghong.

Danghong Technology's main business: algorithm research of intelligent video technology, relying on years of technology accumulation, with high-quality video transcoding and transcoding, intelligent portrait recognition, full-platform playback, video cloud services and other core algorithm research and application results, is a national high-tech enterprise for media culture and public safety and other fields, providing intelligent video solutions and video cloud services.

When The first quarter report of Hong Technology in 2022 shows that the company's main revenue is 68.0255 million yuan, up 10.16% year-on-year; the net profit attributable to the mother is -14.9914 million yuan, down 1139.13% year-on-year; the deduction of non-net profit is -15.4811 million yuan, down 2397.33% year-on-year; of which in the first quarter of 2022, the company's single-quarter main revenue is 68.0255 million yuan, up 10.16% year-on-year. Single-quarter attributable net profit - 14.9914 million yuan, down 11.3913% year-on-year; single-quarter non-net profit - 15.4811 million yuan, down 23.97.33% year-on-year; debt ratio of 19.66%, investment income of 91,500 yuan, financial expenses -2.9926 million yuan, gross profit margin of 31.2%.

The stock has had a total of 8 ratings and 8 buy ratings in the last 90 days, and the average target price for institutions in the past 90 days has been 52.25.

Here is detailed profit forecast information:

Margin data shows that the stock's net outflow in the past three months was 138 million, and the balance of financing decreased; the net outflow of margin was 21.6611 million, and the balance of margin decreased. The Securities Star Valuation Analysis Tool shows that when The 688039) has a good company rating of 2 stars, a good price rating of 2.5 stars, and a comprehensive valuation rating of 2 stars. (Rating Range: 1 ~ 5 stars, maximum 5 stars)

The above content is compiled by Securities Star based on public information, if you have any questions, please contact us.