Jefferies: DC Holdings (00861) shows strong overseas expansion, maintains "buy" rating.

Recently, the well-known investment bank Jefferies on Wall Street released the latest research report on DC HOLDINGS (00861). The report pointed out that DC HOLDINGS' big data revenue in the first half of 2024 increased by 17% year-on-year, leading to a 5% overall revenue growth. Despite a slight decline in net profit due to the impact of subsidiary Digital China Information Service Group, analysts expect a gradual recovery in the second half of this year and next year. In addition, the company's overseas business grew strongly, with a 55% year-on-year increase in foreign income, accounting for 7% of overall revenue. The report believes that in vibrant overseas markets such as Thailand and Vietnam, DC HOLDINGS has a first-mover advantage. Jefferies predicts that DC HOLDINGS' total revenue will be HKD 20.023 billion, 22.387 billion, and 24.669 billion from 2024 to 2026, with EBIT 480 million, 811 million, and 992 million, and a target stock price of HKD 4.29, maintaining a "buy" rating. The core points of Jefferies' report are as follows: In the first half of the year, DC HOLDINGS was affected by the subsidiary Digital China Information Service Group, leading to pressure on profits, but this sector still has significant long-term development opportunities. This judgment is mainly based on the following reasons: first, the development trend of ICT localization (such as XinChuang) in the next three years remains unchanged; second, market share is expected to further increase through new product development; third, the competitive landscape is expected to continue improving. The big data business maintains high growth, and the long-term profit model is expected to improve. In the first half of this year, benefiting from an increase in the number of customers and an increase in average customer price, big data revenue increased by 17% year-on-year (vs 12% YoY in 1H23), accounting for 18% of total revenue. Although the gross profit margin for the period has decreased slightly, the company is promoting a platform mode by adopting various fee models such as product license, SaaS, DaaS, and MaaS, so it is expected that with the improvement of the company's product standardization, the profit margin of the big data business will continue to improve. The overseas business maintains strong growth. In the first half of this year, DC HOLDINGS' foreign income increased by 55% year-on-year, mainly driven by two factors: first, continued participation in the digital transformation projects of the governments of the Hong Kong Special Administrative Region and the Macao Special Administrative Region; second, providing supply chain services for Chinese companies going abroad (such as BYD Company Limited, Honor, and other large companies). The report believes that DC HOLDINGS established long-term cooperative relationships with many large Chinese tech companies many years ago, and in the tide of rapid international expansion of these companies, DC HOLDINGS will have more opportunities to provide supply chain services for them. Particularly in the rapidly developing Southeast Asian markets such as Vietnam and Thailand, DC HOLDINGS has a stronger first-mover advantage. Jefferies' report is based on comprehensive market analysis and a deep understanding of the company's future development potential, providing investors with a clear investment perspective. Jefferies remains positive about the long-term development of DC HOLDINGS, whether it is the company's core big data business or the currently robust overseas business momentum, both are expected to bring greater growth space for the company in the future.