1Q22 performance is lower than we expected.
The company announced its 2021 and 1Q22 results: the company's revenue in 2021 was 2.684 billion yuan, an increase of 19% over the same period last year, and its mother's net profit was 470 million yuan, a decrease of 9% over the same period last year. 1Q22's revenue was 615 million yuan, down 31% from the same period last year, and its net profit was 72 million yuan, down 63% from the same period last year. The performance was lower than we expected, mainly due to a sharp decline in domestic construction machinery sales compared with the same period last year and reduced demand for related accessories.
The production capacity of hydraulic parts has been released, and the comprehensive gross profit margin has dropped a lot. In 2021, the company's crushing hammer revenue decreased by 13% to 1.112 billion yuan compared with the same period last year, while hydraulic parts revenue increased by 61% to 1.521 billion yuan, mainly due to the release of hydraulic main pump and motor capacity and an increase in market share. Affected by the price of raw materials, the company's comprehensive gross profit margin decreased by 6.9ppt to 33.8% in 2021 compared with the same period last year, of which the gross profit margin of crushing hammer and hydraulic parts decreased by 11.4/1.2ppt to 33.2% and 32.5% respectively.
The net interest rate fell compared with the same period last year and cash inflows decreased. In 2021, the company's expense rate increased year-on-year, including sales, management, research and development, financial expense rate increased 0.2/0.1/0.3/0.3ppt, affected by the reduction of gross profit margin, net profit margin decreased 5.4ppt to 17.5%. As the rising price of raw materials squeezed out working capital, the company's operating activities had a net cash inflow of 207 million yuan in 2021, 127 million yuan less than the same period last year.
Trend of development
In 2022, the demand of domestic construction machinery is under pressure, and the export boom is high. Affected by the rotation of replacement demand and the decline of real estate prosperity, the demand for domestic construction machinery has been relatively low in the past year. Since May 2021, monthly sales of domestic excavators have declined by more than 20%, reaching 60% in March 2022.
Although exports nearly doubled during the period, overall monthly sales remained in double digits year-on-year decline. Accordingly, there is downward pressure on the demand and price of related accessories. Looking back, with the further implementation of the national stable growth policy, the availability of relevant funds and the easing of the suppression of construction by the epidemic, we expect the decline in sales in the excavator industry to narrow month-on-month.
Profit forecast and valuation
Considering the downward demand of the construction machinery industry, we lowered the 2022 EPS forecast by 40% to 0.46 yuan, and introduced the 2023 EPS forecast of 0.51 yuan. The company's current share price corresponds to 2022 42x/37xPE 2023. Taking into account the profit reduction, we lowered the target price by 40% to 22.93 yuan, corresponding to 2022 50x/45x PE 2023, which has 20% upside space. Maintain an industry rating that outperforms.
Risk
The demand for construction machinery is lower than expected, and the competition in the industry is intensified.