Adjusted net profit surged by 500%, stock price reached an 8-month high, has the turning point for EDIANYUN arrived?

During the intensive disclosure period of financial reports, the performance forecasts of listed companies have become the focus of investors. Recently, an office IT comprehensive solution provider, EDIANYUN (02416), saw its stock price open high and rise sharply after announcing a positive earnings forecast, with a single-day increase of over 30% on the 19th, subsequently reaching HKD 3.05, a new high in 8 months, nearly doubling compared to a month ago.

The performance forecast indicates that the company expects its adjusted net profit for the fiscal year 2024 to be between RMB 75 million and RMB 85 million, representing a growth of 493%-558.7% compared to the fiscal year 2023; revenue is expected to be between RMB 1.35 billion and RMB 1.4 billion, a year-on-year increase of 6.2%-10.2%.

For a long time, the capital market has not paid much attention to EDIANYUN. In August 2024, the company was removed from the Hang Seng Composite Small Cap Index due to a continuous decline in its stock price, and in September, it was also removed from the Hong Kong Stock Connect.

Since October last year, EDIANYUN has frequently repurchased shares, having repurchased at least 1.8 million shares just in January. With this positive earnings forecast and a significant rebound in stock price, does it indicate that EDIANYUN's fundamentals have shown signs of bottoming out and recovering?

Significant Improvement in Profitability Indicators, Reliance on a Single Business

Recently, following a year-on-year turnaround to profitability in its interim report, EDIANYUN has once again delivered a "report card" that surprised the market.

According to the latest disclosure announcement, EDIANYUN expects to record revenue of approximately RMB 1.35 billion to RMB 1.4 billion for the fiscal year 2024, representing a year-on-year growth of approximately 6.2% to 10.2%; the adjusted net profit is expected to be between RMB 75 million and RMB 85 million, a year-on-year increase of approximately 493.0% to 558.7%.

Key operational data has seen comprehensive growth, and business development remains in good shape. The company expects the number of subscription customers at the end of the fiscal year 2024 to be 51,024, a year-on-year increase of approximately 9.1%; the number of service devices to be 1.3742 million, a year-on-year increase of approximately 14.1%; and the net increase in service devices to be 169,300, a year-on-year increase of approximately 189.4%.

The company believes that the significant improvement in performance expectations for the fiscal year 2024 is mainly based on the following factors: revenue growth, as the company has still achieved a substantial increase in sales efficiency and launched the highly praised self-developed PC product AI01 series despite a complex macro environment, strengthening its competitiveness as an industry leader; a year-on-year decrease in sales expense ratio, mainly due to systematic optimization of sales team efficiency and effective implementation of refined sales strategies, resulting in a significant improvement in the return on marketing resource investment; and a decrease in financial expense ratio, attributed to the company's improved market position and the continuous optimization of asset quality leading to lower financing costs.

According to Zhitong Finance APP, EDIANYUN was established in 2014 and is a major provider of office IT comprehensive solutions in China. Since its establishment, the company has innovatively provided small and medium-sized enterprises with one-stop reliable and flexible office IT hosting services, including no deposit machine services, IT services, and SaaS software development, through a cyclical subscription model, creating a closed-loop office IT industry chain to help enterprises achieve light asset management of office IT equipment.

From a business structure perspective, EDIANYUN currently still relies heavily on a single business, which is providing on-demand office IT comprehensive solutions to small and medium-sized enterprises. As of the first half of 2024, the revenue from this business reached RMB 576 million, accounting for 89.2% of total revenue, while equipment sales, SaaS, and other services accounted for only 9.9% and 0.9%, respectively

It is understood that the pay-as-you-go subscription model provides customers with hardware, SaaS software, and handles device configuration, device/engineer deployment, operational support, performance optimization, and device management services (including ordering devices, subscription management, on-site inspections, and bulk shipments), all included in one service package. Customers can flexibly subscribe to or cancel office IT services based on changing needs.

It is worth mentioning that in 2024, the company launched its self-developed 12th generation i5 all-in-one machine AI01, which is a new upgraded version of the all-in-one machine originally equipped with the n95 processor. The all-in-one machine equipped with a self-developed, more powerful processor can meet more enterprise office demand scenarios and has a cost-performance advantage compared to similarly configured computers.

In terms of other financial indicators, it is noteworthy that the company's gross margin has declined in recent years. As of June 30, 2024, and June 30, 2023, the company's gross margins were 42.8% and 44.5%, respectively. The company stated that this was mainly due to the need to meet the cost reduction and efficiency improvement demands of small and medium-sized enterprises, leading to a decrease in revenue per unit and an increase in depreciation costs due to the increase in the number of devices.

As of June 30, 2024, the company's R&D expenditure was 33 million yuan, a decrease of 16.6% compared to 39.5 million yuan for the six months ended June 30, 2023, mainly due to the company securing lower cloud server rates and structural adjustments that reduced labor costs.

However, the company's financial situation remains somewhat tight. As of June 30, 2024, the company's cash and cash equivalents decreased from 490 million yuan on December 31, 2023, to 392 million yuan; the company's loan balance was 1.363 billion yuan, of which approximately 815 million yuan is due within one year, approximately 413 million yuan is due within one to two years, and approximately 135 million yuan is due within two to five years.

As of June 30, 2024, the company's capital-to-debt ratio was 143.3%, a decrease of only 3.1 percentage points compared to 146.4% in the same period of 2023.

It can be seen that although the company's performance has improved, the fundamentals still face issues such as tight cash flow and a relatively singular business structure. The recent significant rise in the company's stock price may be more attributed to developments in the AI sector.

DeepSeek disrupts the AI industry, EDIANYUN is expected to benefit from high demand for enterprise device upgrades

DeepSeek has emerged, changing the global landscape of the AI industry and attracting widespread attention from the capital market. During this year's Spring Festival, DeepSeek released the open-source model DeepSeek-R1, which quickly topped the free app store rankings in China and surpassed generative AI products from American tech companies such as ChatGPT, Google Gemini, and Microsoft Copilot in the U.S. region Compared to ChatGPT developed by OpenAI, DeepSeek not only matches its performance but also significantly reduces the cost of reasoning models. According to technical reports, the service pricing for R1 aimed at developers is 1-4 yuan per million tokens (input strings), which is only about 1/30 of OpenAI's o1.

DeepSeek provides enterprises with a low-threshold, high-efficiency AI technology solution, promoting further application of large model technology while also bringing about the demand for related computing infrastructure for localized deployment. Guotai Junan Securities pointed out that the localized deployment of large models will enhance the demand for IT equipment upgrades in enterprises, benefiting hardware fields such as servers, power supplies, UPS, and transformers driven by investments in intelligent computing centers.

As a comprehensive IT solution provider, EDIANYUN also does not want to miss the opportunity of this AI wave and has made early arrangements in the AI field. According to Zhitong Finance APP, in February 2024, EDIANYUN launched the AI large model aggregation platform YizhiHui, allowing enterprises to access GPT usage rights easily, at low cost, and quickly through a nationwide exclusive strategic cooperation with Xinnuo Times; in June, the company launched the world's first industrial-grade large model remanufacturing robot production line application, Defect GPT, which can operate robots through industrial large models to replace manual labor, achieving fully automated detection of 81 remanufacturing processes, effectively improving detection efficiency and capacity.

At the beginning of 2025, EDIANYUN announced the upcoming launch of its self-developed high-end AIPC, which will be equipped with three high-end desktop CPUs: i5-14400F, i7-14700F, and i9-14900KF, as well as three high-performance graphics cards: RTX3050, RTX4060, and RTX5080, providing strong hardware performance support for DeepSeek's localized deployment. At the same time, EDIANYUN also promised to provide enterprises with services for the localized deployment of DeepSeek, truly achieving out-of-the-box usability for enterprises.

For small and medium-sized enterprises that do not have the budget to purchase AI PCs but have a demand for DeepSeek, the self-developed AI PC launched by EDIANYUN will provide a cost-effective solution, and the strong customer base of small and medium-sized enterprises will also become a good soil for the company to explore AI application implementation. With the continued popularity of DeepSeek, the AI business is expected to become a new growth curve for EDIANYUN.

The significant improvement in performance, coupled with the highlights in AI, has led to optimistic expectations from investment institutions for EDIANYUN. For instance, Dongxing Securities has given the company a "recommended" rating, stating that the company's core barriers are continuously solidifying, and with the increase in industry penetration, the company is expected to benefit in the future. However, due to the limitations of business scale and considering that the AI business is still in its early stages, the company is not significantly different from similar enterprises at the current valuation level, and the stock price may lack the momentum for further upward movement. As the macro economy gradually warms up, EDIANYUN deserves continued attention from the market