Performance review
2021 performance is lower than we expected.
The company announced 2021 results: revenue of 937 million yuan, down 0.1% from the same period last year, and net profit of 189 million yuan, down 11% from the same period last year. The performance was lower than expected, mainly due to the high price of raw materials. In a single quarter, 4Q21's revenue was 299 million yuan, down 10% from the same period last year, and its net profit was 55 million yuan, down 22% from the same period last year.
Smart meter revenue declined compared with the same period last year, and the higher cost of raw materials led to a decline in gross profit margin compared with the same period last year. In 2021, the company's mechanical watch income was 260 million yuan, an increase of 9% over the same period last year, while the smart meter income was 513 million yuan, a decrease of 10% over the same period last year. 2021/4Q21 reduced its comprehensive gross profit margin to 33.1% to 30.9% in 2021, respectively, to 18.4% to 39.0% in 2021, mainly due to the high price of raw materials and the relatively high proportion of commodities in the cost composition of mechanical watches.
The expense rate increased compared with the same period last year, and the income from equity investment increased compared with the same period last year. In 2021, the expense rate during the company period increased compared with the same period last year, of which the financial expense rate decreased 0.2ppt year-on-year, while the sales, management and R & D expense rate increased 0.7/0.7/0.2ppt compared with the same period last year. In 2021, the company's net investment income increased by 46% to 103 million yuan compared with the same period last year, mainly because the increase in income from the Yingtan water supply project led to a substantial increase in profits of Yingtan Water supply Group, providing the company with an investment income of 70 million yuan. In 2021, the net cash inflow of the company's operating activities was 84 million yuan, which was 31 million yuan more than that of the same period last year.
Trend of development
In the long run, there is still much room for improvement in the intelligent permeability of water meters. In 2021, the company's smart water meter income accounted for about 61% of the water meter income, which increased by about 20ppt in the past four years, and led to a cumulative increase of about 40 yuan to 106 yuan in the average price of the company's water meter products. According to the statistics of Ningshui Group, the domestic water meter industry sold about 80-90 million units in 2020, the sales penetration rate of smart meters was about 30%, and the stock penetration rate was only 10-20%. With reference to the permeability of about 70-80% of electricity meters and gas meters in China, there is still much room for intelligent improvement in the water meter industry. During the 13th five-year Plan period, the intelligent penetration rate of China's water meter industry increased rapidly, and the growth rate of the industry slowed down obviously from 2020 to 2021. On the one hand, the epidemic hinders the sale and installation of water meters, and the bidding of the industry is relatively mediocre; on the other hand, 2021 is the beginning of the 14th five-year Plan, local government water investment is in the planning stage, and few projects are on the ground. Looking back, we think that the tendering of the water meter industry is expected to resume gradually.
Profit forecast and valuation
Considering the high cost of raw materials, we reduce the 2022 EPS forecast by 13% to 0.20 yuan, and introduce the 2023 EPS forecast of 0.22 yuan. The company's current share price corresponds to 2022 25.2x/22.9xPE 2023. We maintain our target price of 5.30 yuan, corresponding to 2022 26.3x/23.9x PE 2023, with 4% upside, and maintain an industry rating that outperforms.
Risk.
The bidding of the water meter industry is not as expected; the research and development of new products is not as expected.