Event description
China Electric Research released its mid-2021 report that H1 realized revenue of 1.581 billion yuan, an increase of 45.59% over the same period last year, and net profit of 157 million yuan, an increase of 21.16% over the same period last year. Of this total, Q2 achieved revenue of 997 million yuan, an increase of 49.54% over the same period last year, and a net profit of 110 million yuan, an increase of 26.13% over the same period last year.
Event comment
The revenue growth rate of testing and certification is slightly slower, the business of intelligent equipment is growing again, and the volume and price of environmental protection coatings are on the rise. The company achieved a revenue growth rate of 45.59% in the first half of this year, of which: 1) the growth rate of YoY+10.5%, revenue from quality and technical services is slightly slower, which may be related to the impact of the epidemic outbreak in Guangzhou and Shenzhen from May to June. In 2020, the company added 10 laboratories and 5 representative offices, and the original value of testing equipment increased by 18.5%, which can support revenue performance. It is expected that the sector will usher in revenue volume in the second half of the year. 2) Intelligent equipment revenue YoY+48.4%, epidemic situation at home and abroad has eased, and the business of intelligent manufacturing of household appliances and excitation equipment is expected to recover. Due to the improvement of the prosperity of the industry and the application of the company's new technology in series, the lithium battery automatic detection system is expected to achieve rapid growth in newly signed orders and revenue, and some orders delayed acceptance in 2020 are expected to be cashed in revenue this year. The company has signed a series of new energy battery production automatic detection system supply contracts with the leading enterprises in the lithium battery industry. 3) Environmental protection paint and resin revenue YoY+80.8%, Dongguan Lishadao polyester resin base phase I production capacity fully released, polyester resin production and sales increased by more than 50% year-on-year, scale effect appears, the second phase 40,000 ton expansion has entered the trial production period, is expected to achieve continuous production in the fourth quarter; and the upstream raw material price increase prompted the company to gradually increase the product sales price.
Changes in business structure and rising prices of raw materials are a drag on the company's gross profit margin. In the first half of the year, the company's gross profit margin was 27.7%, which decreased by 6.53pct compared with the same period last year. Q2 gross profit margin decreased 6.03% compared with the same period last year. On the one hand, it was due to changes in the business structure. In the first half of the year, the revenue growth rate of smart equipment and environmentally friendly coatings with relatively low gross profit margin (2020 gross profit margin was 28.7% and 20.8%, respectively) was significantly higher than that of quality technical services with higher gross profit margin (2020 gross profit margin of 47.0%). On the other hand, the smart equipment and environmentally friendly paint business is under some pressure from the rising prices of upstream bulk raw materials, while the quality technical service business is still in the period of market development due to the large number of new laboratories put into operation last year, with slower revenue growth and a higher proportion of rigid operating costs, resulting in a slight pressure on gross profit margin. It is expected that with the further appearance of the scale effect of the company's environmental protection paint business and the increase in product prices, the steady growth of intelligent equipment business and the improvement of capacity utilization of testing and certification laboratories, the company's gross profit margin will gradually improve.
Welcome the operational inflection point of each business in 2021. With many testing and certification plates with high gold content qualifications, the original growth rate of equipment related to the certification plate has continued to increase since 2017, and many new business laboratories have been put into operation as scheduled to support future revenue performance; lithium battery automatic testing system benefits from the high prosperity of the industry and technological upgrading, orders are expected to burst quickly; while the production capacity of environmental protection paint business is greatly expanded, it will also enjoy price increases.
Profit forecast and valuation: the company is expected to achieve revenue of 338 million yuan in 2021-2023, net profit of 3.59 million yuan and 478 million yuan, an increase of 27.0%, 33.0% and 23.6% over the same period last year, corresponding to the PE valuation of 44.7x/33.6x/27.2x, maintaining the "buy" rating.
Risk hint
1. Industry competition aggravates risks
two。 The utilization rate of laboratory capacity is lower than the expected risk.