Title: Also engaged in software, why do institutions never wait to see? Revenue increased nine times in a row, executives locked in equity incentives at low prices, Beyondsoft: It's not that I'm excellent, it's all backed by peers!
There is no love for no reason, and there is no hate for no reason.
Author | Tsuneyama
Edit | Xiaobai
If there is a listed company with a market value of more than 8 billion yuan and no actual controller for a long time, what do you old iron think? Will it feel violent to the heavens?
You know, controlling a listed company is equivalent to unlocking countless ways to play, posture, angle... Eh, eh, say fork, fork, fork. You know, in the market capitalization APP, there are more stories of actual controllers of listed companies playing routines for profit than one thousand and one nights.
Is it because the performance is very poor?
No, the company has not lost money since its listing, and its earnings are stronger than its peers, and its cash flow is good, but it has not been welcomed and not liked by institutional investors.
This company is - Beyondsoft. At one point, for four or five years, institutional investors held small stakes.
According to the position data of half-year reports and annual reports since 2017, the largest number of institutional holdings is in the 2022 interim report, with 36.39 million shares, with a total of 71 funds holding common positions; Among them, the two social security funds held a total of 21.18 million shares.
In the fourth quarter of 2022, only 3 public funds held Beyondsoft shares, a total of 1.03 million shares, and the data of the company's position was not disclosed.
(Tabulation: Market Cap APP)
Beyondsoft's share price began to rise on January 3, 2023, and the range as of February 14 is up nearly 50%.
If nothing else, many public funds have missed this round of gains.
First, with the halo of "science and technology", the essence is "code farmer"
01. Start by writing code, and my stock ranks in the top 15%
Wang Bin, Ma Qiang, Zhang Rongjun and Gong Yaobin are the founding shareholders of Beyondsoft, and the four founded the predecessor of the company, Beijing Beyondsoft Technology Development Co., Ltd., on April 17, 1995.
As early as 2004, Beyondsoft set up a red-chip structure to plan for overseas listing, but after 8 years of success, it was finally listed on the A-share market in January 2012.
At the beginning of the listing, Wang Bin and the other four had a dispersed shareholding, so they signed a concerted action agreement, which expired in January 2015 and was terminated and not renewed. As a result, Beyondsoft changed to have no actual controller and no controlling shareholder, and it continues to this day.
Beyondsoft, which bears the halo of "technology", is essentially engaged in the "code farmer" business.
Its main business is software and information service outsourcing, and it was originally "coded" for large multinational companies such as Microsoft and Hewlett-Packard, a typical "code farmer" company. From 2009 to 2011, the combined revenue from these two companies accounted for 59%, 60% and 58% of Beyondsoft's total revenue, respectively.
After its listing in 2012, Beyondsoft has focused on expanding its business in the financial field and has become one of the largest financial service outsourcing companies in China.
According to CCID Consulting's 2021 China Banking IT Solutions Market Share Analysis Report, Beyondsoft's mobile banking solutions and open banking solutions ranked 7th in the market.
Beyondsoft's stock ranking has risen for many years in a row, and recently ranked 660th, ranking in the top 15% of the market.
(Source: Listing value APP, search before buying stocks)
02. The performance has increased for 9 consecutive years, but it is not sought after by the market
IDG research report disclosed that the market size of China's financial IT outsourcing services is growing faster than the global growth rate, with an average annual growth rate of 11% from 2015 to 2020. Among them, the market size in 2019 was about 119 billion yuan (US$17 billion).
The growth of the financial IT outsourcing service market has enabled the revenue of related enterprises to grow rapidly.
Under the model of "organic growth + external M&A", Beyondsoft's revenue increased from 815 million yuan in 2012 to 5.532 billion yuan in 2021 (9 consecutive years of growth), with an average annual compound growth rate of nearly 24%.
During the same period, the average annual compound growth rate of net profit and non-net profit was 17.7% and 18.5% respectively, although lower than the growth rate of operating income, but overall maintained rapid growth.
In the first three quarters of 2022, operating income reached 4.766 billion yuan, a year-on-year increase of 23.7%; Net profit attributable to owners was RMB278 million, down 5.6% year-on-year.
(Tabulation: Market Cap APP)
Despite this, since 2016, Beyondsoft's market capitalization has not exceeded the peak of 2015, and it has only been about 1/3 of the peak for a long time.
In other words, capital market investors seem to be ignoring its performance growth over the past 5 years.
It should be pointed out that in April 2019, the company issued 5,758,200 convertible bonds, raising 575 million yuan for four projects, including "data governance and financial big data solution technology upgrading and construction".
As of the end of June 2022, only the expansion of the Shenzhen Delivery Center was completed on schedule among the four fundraising and investment projects, all the other three projects were changed, and the remaining 456 million yuan supplemented the working capital.
Perhaps in order to save shareholders money, it plans to invest 172 million yuan in cutting-edge technology research and development projects, but the actual investment is less than 8 million yuan.
(Tabulation: Market Cap APP)
But is it just a matter of money? This is the concept of rubbing, and the speculators in the secondary market can't find a good reason to start.
If there was a little action in cutting-edge technologies such as AIGC, artificial intelligence, human-computer dialogue, brain-computer development, etc., even if a laboratory was established, or a shell company with the word "intelligence" was registered, Beyondsoft's stock price would not have risen a little in the market so far in 2023.
Fengyunjun is anxious for Beyondsoft.
Back to business.
If a software system or software product is a building, then the software development outsourcing company is the construction company or construction team that builds the building.
This can also be reflected in the gross profit margin, Beyondsoft's gross profit margin of around 26%, which is still a bit far from the high gross profit; And its price-to-earnings ratio has been around 20 times for a long time.
The business model of IT service outsourcing determines that it is difficult to expand rapidly and the marginal cost is diminishing. Although Beyondsoft has many halos such as science and technology, information technology, etc., it is essentially a construction company that organizes "code farmers" to build one "building" after another.
After completing the delivery of a project, it needs to continue to explore the incremental market and reinvest resources to complete the next project, which cannot achieve rapid expansion and cost margin reduction.
In stark contrast, Guanglianda, which currently has a price-to-earnings ratio of more than 80 times.
The same is software, why is the gap between the two so large?
Guanglianda's core product is to provide a comprehensive software system with project pricing as the core function to participants in the field of construction engineering, and has an absolute market share in the industry.
For such companies, adding a new customer does not require a lot of resources to re-invest a lot of resources to develop a new software system, but only needs to provide the customer with a login account for the existing software system.
From this perspective, the capital market does "have no love for no reason, and there is no hate for no reason."
03. R&D engineering services contribute half of the revenue
At present, the company divides its business revenue into three categories: products and solutions, enterprise applications and IT services, and R&D engineering services.
Among them, R&D engineering services are the largest business, exceeding 3.1 billion yuan in 2021, reaching 3.143 billion yuan; products and solutions are the second largest business, with revenue of nearly 1.3 billion yuan in 2021; and enterprise applications and IT services are the least, with 1.056 billion yuan in 2021, a year-on-year decline.
(Tabulation: Market Cap APP)
Specifically:
R&D engineering services refer to undertaking and participating in the process of customer business application and product development based on mature IT technology, providing targeted technical solutions, as well as technical services in all or specified links, and assisting customers to complete product or business delivery;
IT operation and maintenance business, providing customers with IT operation and maintenance services, such as operating system operation and maintenance, hardware system operation and maintenance, network operation maintenance and support, information security management, etc., usually a continuation of R&D engineering services;
(Source: Internet)
Products and solutions, that is, to provide independently developed replicable and mature software products or tools for finance, Internet, technology and other industries, and carry out customized development and supporting technical services on this basis.
From a cost point of view, products and solutions should be businesses with diminishing marginal costs. As a result, its gross margin is relatively higher, reporting close to 29% in mid-2022, while the other two businesses are around 25%.
(Tabulation: Market Cap APP)
By region, Beyondsoft's domestic business revenue has grown rapidly, with an average compound growth rate of 35% from 2015 to 2021. During the same period, foreign business revenue increased by 8.5%.
Since 2020, the revenue scale of domestic and foreign business is roughly 2:1, and the gross profit margin of the former is lower than that of the latter.
(Tabulation: Market Cap APP)
04. The per capita annual salary is 130,000
As a software outsourcing company, human resource costs are a major part of Beyondsoft's operating costs.
Taking 2020 and 2021 as an example, its labor costs were 2.779 billion yuan and 3.575 billion yuan, respectively, accounting for 85.4% and 87.5% of the current operating costs.
In 2020 and 2021, the total number of salaried employees was 21,266 and 273.01 million respectively, corresponding to per capita annual wages of RMB130,700 and RMB130,900 respectively.
To this end, Fengyunjun specially checked, according to the information of Jobmate.com, the average annual salary of Microsoft China's employees in 2021 is 405,600 yuan.
This means that the salary of one employee in Microsoft China is equivalent to the sum of the salary of three employees of Beyondsoft, and it is no wonder that large multinational companies and Internet manufacturers prefer to find service outsourcing companies.
Let's take a look at Beyondsoft's R&D investment over the years.
Since 2018, the company's R&D investment has increased significantly, but the ratio of R&D investment to operating income has dropped from 7.3% in 2016 to about 4.7%.
In 2021, its R&D investment reached 260 million yuan, most of which was expensed. In the long run, the proportion of R&D capitalization of the company is basically controlled within 10%.
As an IT service outsourcing company, in fact, it doesn't matter if R&D is not R&D, after all, it is necessary to implement it in place according to Party A's needs, so fancy and whistle.
In fact, Beyondsoft does exactly that. Of the RMB172 million raised by convertible bonds for research on cutting-edge technologies in 2019, only RMB7.94 million was used, and the rest was replenished with liquidity.
The company's R&D workforce has maintained an accelerating growth trend, but the ratio of R&D personnel to total employees has decreased from 16.4% in 2017 to about 10% in 2021.
(Tabulation: Market Cap APP)
05. Lock in incentive shares in 2022 in advance
In July 2022, the company announced its second equity incentive plan since its listing, proposing to grant 11.4 million shares to a total of 246 managers and core technical (business) personnel.
The assessment conditions for this incentive do not seem to be very difficult, with revenue growth of 15% or profit growth of 10%, and one of them can meet the standard.
In the first three quarters of 2022, Beyondsoft's revenue growth rate has been 23.7%. If nothing else, executives should lock in the 2022 grant portion of the equity incentive plan in advance.
Looking at the grant price of the equity incentive plan, it is only 5.04 yuan per share. You know, Beyondsoft's stock price closed at 10.29 yuan / share at the end of December 2022, and continued to rise to 15.26 yuan / share on February 14, 2023.
If the option is successfully exercised, the management will have a 200% floating book profit.
06. Major shareholders reduced their holdings and cashed out 900 million yuan, and the dividends of listed companies were only 540 million yuan
Since February 2015, when the company had no actual controller, important shareholders, including the four founding shareholders, began to reduce their holdings one after another, selling more than 44 million shares and cashing out nearly RMB900 million by the end of December 2022.
(Tabulation: Market Cap APP)
The four founding shareholders reduced their holdings in succession, resulting in a continuous decline in their shareholding.
As of the end of the third quarter of 2022, Wang Bin held 8.24% of the shares among the top ten shareholders, ranking first; Zhang Rongjun, Ma Qiang and Gong Yaobin George hold 6.06%, 5.94% and 3.23% of the shares, respectively.
Among them, Wang Bin served as the chairman of the listed company, Ma Qiang served as the general manager, and Zhang Rongjun, the former deputy general manager and director, left in 2018.
As mentioned above, Beyondsoft's performance has maintained growth since its listing, with a cumulative net profit of 2.144 billion yuan and a cumulative net operating cash flow of 2.407 billion yuan from 2012 to 2021, with a good net profit cash content.
During this period, Beyondsoft paid dividends 11 times, totaling 540 million yuan, accounting for 25% of the cumulative net profit; A total of 2 fundraises, totaling 950 million yuan.
2. Financial analysis: low interest-bearing liabilities, abundant cash, and high proportion of goodwill
Beyondsoft's asset-liability structure is relatively simple.
Among them, current assets are mainly monetary funds and accounts receivable; Non-current assets are mainly long-term equity investment, investment real estate, fixed assets, intangible assets, goodwill, etc., and goodwill accounts for the largest proportion, reaching 40% at the end of the third quarter of 2022.
On the liability side, the remuneration payable to employees accounts for the largest proportion of current liabilities, accounting for about 50%; Short-term borrowings and non-current liabilities maturing within one year are small; Non-current liabilities of medium and long-term borrowings and bonds payable have been cleared.
On the whole, the company has abundant monetary funds, small scale of interest-bearing liabilities, and relatively large accounts receivable, goodwill, etc.
(Tabulation: Market Cap APP)
01. Be wary of goodwill explosions
As mentioned above, Beyondsoft's revenue growth depends on external mergers and acquisitions in addition to organic development.
As a result, it has successively acquired companies such as North Xinyu, TPG (United States), Jiangsu Asian Bank, and Rongyitong, generating the original value of goodwill of nearly 800 million yuan. As of the end of the third quarter of 2022, the carrying value of goodwill was $758 million.
From the past operating situation, the acquired company operated normally, and there was no significant impairment of goodwill; As of the end of the second quarter of 2022, the cumulative goodwill impairment provision was 37.29 million yuan, which came from TPG (United States) and Jiangsu Asian Bank, respectively.
(Tabulation: Market Cap APP)
Beyondsoft did not carry out diversified mergers and acquisitions and cross-field investments, and the companies acquired were all enterprises in the fields of software services and information technology, forming synergies with the original business of listed companies in terms of operation.
Nevertheless, as an investor, you still need to be vigilant about the goodwill of the company, especially at important points such as the eve of the release of the earnings forecast.
02. The growth rate of accounts receivable is relatively high
As can be seen from the balance sheet above, the company's accounts receivable are growing rapidly.
Among them, in 2017, 2018 and 2021, the growth rate of accounts receivable exceeded the growth rate of revenue and current assets in the current period.
In 2021, the growth rate of accounts receivable reached 44% for the first time, and accounts receivable in the first three quarters of this year increased by 18% month-on-month, although lower than the growth rate of operating income in the same period, but much higher than the growth rate of current assets.
(Tabulation: Market Cap APP)
The higher growth rate of accounts receivable will inevitably lead to an increase in credit impairment losses, which were nearly $16 million in 2021, compared to nearly $26 million in the first three quarters of 2023, $10 million more than in the whole of 2021.
This also affects the company's operating cash flow to a certain extent, continue to look down.
03. Matching operating cash flow with revenue
From 2012 to 2021, Beyondsoft's cash-to-cash ratio was basically around 100%, indicating that operating cash inflow matched operating income.
During the same period, the net present ratio was higher than 100%, and the net operating cash flow was higher than the net profit, that is, the net profit had a higher cash content, mainly due to the listed company's other income of 30 million yuan to 55 million yuan (government subsidies accounted for more than half).
(Tabulation: Market Cap APP)
Notably, the company's net present ratio plummeted to 21% in the third quarter of 2022, well below the historical average.
Looking at the company's historical data, there are very obvious seasonal characteristics, that is, the net present ratio in the first and third quarters of each year is low, or even negative.
3. Comparison of financial indicators: Beyondsoft relies on the help of peers
At present, there are more than 120 listed companies (including ST companies) involved in software service outsourcing business in A-shares, of which 33 companies with operating income of more than 2 billion yuan in 2021.
During the period 2012-2021, the arithmetic average annual compound growth rate of operating income of these companies was 14.5%, lower than Beyondsoft's 23.7%.
This paper selects five companies with large revenues, including Neusoft Group, Jinzheng Shares, Huayu Software, Teamsun Tiancheng, and Yusys Technology, and compares and analyzes them with Beyondsoft.
Software outsourcing companies generally experienced a decline in performance in 2022, with 3 issuing performance forecasts, all of which are expected to lose money. Among them, Huayu Software has the largest pre-loss, or 1 billion yuan, and Neusoft Group has an advance loss of 480 million yuan to 550 million yuan.
(Tabulation: Market Cap APP)
01. Growth capacity: Beyondsoft has an average annual compound growth rate of 23.7%, which is higher than that of its peers
This section focuses on the growth of operating income and net income.
Compared with the five companies in the same industry, Beyondsoft has a relatively high compound annual growth rate of 23.7% from 2012 to 2021.
Jinzheng Co., Ltd. and Yusys Technology, which also belong to the service outsourcing business in the financial field, have an average annual growth rate of 15.04% and 16.25% respectively.
Neusoft Group's revenue base is large, and the average annual growth rate of revenue in the past 10 years has been slow.
The revenue of Teamsun has declined significantly, and since 2019, the revenue of its core business enterprise IT system solution business has declined significantly.
(Tabulation: Market Cap APP)
From the perspective of operating income, 5 of the 6 companies maintained a growth trend, but there was a very big difference in non-net profit.
From 2012 to 2021, Neusoft Group and Jinzheng Co., Ltd., which have large revenue scale, have accumulated non-net profits of less than 1.2 billion yuan.
During the same period, the cumulative non-net profits of Huayu Software, Beyondsoft and Yusys Technology were 2.8 billion yuan, 1.79 billion yuan and 1.69 billion yuan respectively, and it was these three companies that maintained the growth trend.
(Tabulation: Market Cap APP)
Combined with the average annual growth rate of operating income and the growth trend of non-net profit, Beyondsoft and Yusys Technology have good growth.
Huayu Software predicts a large loss in 2022, deducting a non-net profit loss or close to 1 billion yuan, and the scale of revenue has fallen by more than half, and the sustainability of operation is doubtful.
Although Neusoft Group's operating income has maintained growth, its non-net profit since 2018 has been very poor.
02. Profitability: Beyondsoft's gross profit margin is in the middle, but the expense ratio is well controlled during the period
In terms of profitability, the comprehensive gross profit margin of the six companies showed a downward trend, especially Huayu Software and Yusys Technology, which had higher gross profit margins. The gross profit margin of Jinzheng shares and Huasheng Tiancheng is lower, but it still declines.
Beyondsoft's consolidated gross margin is at an intermediate level, stable at around 25% since 2020.
(Tabulation: Market Cap APP)
Let's look at the change in net profit margin on sales.
Since 2012, only Beyondsoft and Yusys have maintained positive net profit margins, the latter slightly higher than the former. Huayu Software's net profit margin on sales was stable at more than 15% from 2012 to 2019, but began to decline sharply in 2020.
(Tabulation: Market Cap APP)
Overall, the companies with higher comprehensive gross profit margin and stable net profit margin of sales are Beyondsoft and Yusys Technology, and Huayu Software maintained an excellent level until 2019, but the decline in the past two years has been very large.
Since 2018, Beyondsoft's period expense ratio has been lower than that of five other companies in the same industry, and has remained at about 18% in the past two years, which is comparable to Teamsun and Jinzheng, and lower than Neusoft Group, Huashuang Hardware and Software, and Yusys Technology.
Huayu Software's period expense ratio was higher, especially in the third quarter of 2022, soaring to 49.5%, eating up most of its profits.
(Tabulation: Market Cap APP)
When comprehensively judging profitability, in addition to analyzing the gross profit margin and net profit margin, it is also necessary to consider the expense ratio during the period. Relatively speaking, Beyondsoft's consolidated gross margin was at the midstream level, but the expense ratio level during the period was lower than that of several other companies.
03. Net profit cash content: Beyondsoft is relatively good
This section discusses the net profit cash content (net present ratio).
Comprehensive comparison, among the six companies, the net profit cash content is higher than Beyondsoft and Huayu Software; The net profit of Neusoft Group, Jinzheng and Teamsun Tiancheng is poor.
(Tabulation: Market Cap APP)
On the whole, Beyondsoft is a company with better financial data performance among "code farmer" companies.
However, Beyondsoft is positioned as an IT "construction company", with a low gross profit margin for a long time and difficulty in achieving large-scale expansion of its business model, so it has not been well received by investors.
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