Incident Overview
On October 22, Ruiming Technology released its report for the third quarter of 2021. In the first three quarters of 2021, the company achieved operating income of 1,296 million yuan, an increase of 24.89% over the previous year; achieved net profit of 53 million yuan, a decrease of 60.33% over the previous year, after deducting net profit of 37 million yuan from the non-return mother, a year-on-year decrease of 65.46%.
Short-term factors caused significant fluctuations in third-quarter results
In the first three quarters of 2021, the company achieved revenue of 1,296 million yuan, an increase of 24.89% over the previous year; Q3 achieved revenue of 454 million yuan in a single quarter, an increase of 7.48% over the previous year. We believe that the company's revenue growth rate in the third quarter was mainly due to the following three reasons: 1) the electricity restriction policy in late September affected the delivery of materials from some raw material suppliers, which in turn reduced the company's productivity; 2) the company had a lot of overseas business, so in the context of continued appreciation of the RMB, book revenue declined; 3) the impact of the epidemic has not completely subsided, causing delays in delivery of some projects, affecting revenue achievement.
Higher prices of raw materials and high investment in R&D have lowered Q3 profits. Subsequent adverse factors are expected to gradually eliminate the profit side. The company achieved net profit of 53 million yuan in the first three quarters, a year-on-year decrease of 60.33%; Q3 achieved net profit of 6015 million yuan in Q3 in a single quarter, down 98.77% from the previous year. We believe that the main reasons for the decline in the company's profit include: 1) the decline in gross margin. Due to rising raw material costs such as downstream chips, the company's gross margin of 2021Q3 was 37.36%, down 7.48pct from the same period last year; 2) cost increases. On the one hand, compensation and losses due to production line relocation raised the company's management expenses ratio from 7.71% to 8.33%. On the other hand, the construction of a three-level R&D structure and the switch of chip solutions also increased the R&D cost rate from 14.55% to 15.28%. We expect that if the shortage of downstream raw materials such as chips is mitigated in the future, and the adverse effects of superimposed production line relocation and R&D structure adjustments on the company's costs are eliminated, the company's profit margin is expected to return to the previous level.
Actively laying out the front-end market is expected to open up new growth space
In August 2021, the company announced the signing of a comprehensive strategic cooperation agreement with Horizon. The two sides jointly released two commercial vehicle rear mount products based on the Horizon Sun 3 chip — 360 surround view and front view ADAS cameras. In the future, the two sides will also accelerate the commercial implementation of active safe driving in the commercial vehicle front-loading market. This collaboration with Horizon is another major move since the company reached a cooperation with Shaanxi Automobile in November last year and established the front assembly division in June this year. According to the semi-annual report, the company's 2021H1 front-loading business achieved revenue of 19.07 million yuan, an increase of more than 400% over the previous year. We anticipate that in the context of unchanging the trend of intelligent connectivity for commercial vehicles, the company is expected to open up new growth space by entering the front-end market.
Investment advice
The policy encourages superposition technology upgrades, and the commercial vehicle intelligent connectivity industry is booming. The recovery in demand brought about by the recovery of the overseas epidemic and the company's continued investment in overseas business. The company is expected to achieve revenue of 2.053/26.39/3.405 billion yuan in 2021/2022/2023, an increase of 27.4%/28.7%/29.0% over the previous year. It is expected to achieve net profit of 2.05/289/396 million yuan, an increase of -12.5%/40.6%/37.0% over the previous year, and maintain the “buy” rating.
Risk warning
1) Relevant industrial policies fell short of expectations;
2) Commercial vehicle sales fell short of expectations;
3) The development and commercialization of new technologies such as the Internet of Vehicles fell short of expectations;
4) Trade frictions and exchange rate fluctuations.