The performance in 2021 is slightly higher than we expected.

Shenzhen Science and Technology announced its results for 2021: revenue of 16.488 billion yuan, + 10.2% year-on-year, and net profit of 775 million yuan, + 9.5% compared with the same period last year, slightly higher than we had expected, mainly due to higher-than-expected fair value changes in financial derivatives and investment real estate. Corresponding to the single quarter of 4Q21, the company achieved revenue of 4.221 billion yuan,-4.0% year-on-year, and net profit of 259 million yuan,-37.1% year-on-year.

Trend of development

Storage semiconductors and high-end manufacturing businesses performed brightly, while revenue from two-wheel drive companies grew. The storage semiconductor business achieved revenue of 2.885 billion yuan, an increase of 22.19% over the same period last year, and a gross profit margin of 16.16%, an increase in 1.18ppt over the same period last year. Among them, the company actively expanded the closed testing capacity of storage semiconductors. Hefei Peyton Storage Project completed the first phase of the project in June 2021 and officially put into production in December 2021. Shenzhen Technology Peyton 2021, a subsidiary of closed testing business, achieved an operating income of 2.2 billion yuan and a net profit of 140 million yuan. We believe that with the smooth expansion and commissioning of the company's closed testing capacity, the company is expected to cooperate with the business development of Hefei Changxin and other domestic memory chip manufacturers to achieve the rapid growth of closed testing business. be optimistic about the performance increment brought by the closed test business of storage semiconductors. Demand for medical products such as ventilator / virus tester / blood glucose meter is booming, sales of superimposed automobile power battery systems / supercapacitor products have increased, and the revenue of high-end manufacturing business has reached 12.144 billion yuan, an increase of 18.84% over the same period last year, with a gross profit margin of 6.52%, an increase of 0.41ppt over the same period last year. We believe that the company, as the world's leading electronics manufacturing service provider, is expected to benefit from the trend of localization in the electronics industry, while the company will complete the divestiture and integration of its consumer electronics business in April 2022, and its profitability is expected to be further improved. The revenue of the metering intelligent terminal reached 1.332 billion yuan, down 37.41% from the same period last year. We expect steady growth in the future under the development trend of global energy management upgrading.

Management costs are affected by short-term factors, and R & D expenses maintain a high growth. In the process of consumer electronics business integration, the company transferred the relevant business of the Huizhou factory to the Guilin factory, bringing some staff diversion settlement fees, superimposed the start-up expenses of Hefei Peitun Storage and put into production. The company's management expenses reached 630 million yuan in 2021, an increase of 32.6% over the same period last year. With the completion of consumer electronics business integration and the gradual improvement of Hefei Peitun production capacity construction, the company's management expense rate has room for optimization. The company's R & D expenditure reached 310 million yuan, an increase of 21.6% over the same period last year. Major R & D projects include high-performance chip wire bonding technology / flip chip packaging, which is expected to enhance the company's long-term competitiveness in the field of memory chip closed testing. At the same time, due to the export sales freight included in operating costs, the company's sales expenses decreased by 15.33% compared with the same period last year.

Profit forecast and valuation

We maintain the net profit of 860 million yuan in 2022 and introduce the profit forecast of 1.09 billion yuan for the first time. The current share price corresponds to the price-to-earnings ratio of 19.3 pound, 15.3 times 2022 pound, 2023. To maintain the outperforming industry rating, due to the downward shift of the valuation center of the industry, we have lowered our target price by 20% to 14.90 yuan, corresponding to the price-to-earnings ratio of 27.0 / 21.3 times 2023, which is 40% higher than the current stock price.

Risk

The localization of memory chips is not as expected, and the market demand of memory chips is not as expected.