2021&1Q22 performance is lower than we expected.
The company announced 2021&1Q22 results: in 2021, the company achieved operating income of 1.264 billion yuan, year-on-year + 26.12%, return to the mother net profit of 196 million yuan, year-on-year + 14.65% position 1Q22 company realized operating income of 111 million yuan, year-on-year-25.78%, return to the mother net profit-55 million yuan, year-on-year-499.65%. We believe that the lower-than-expected performance is mainly due to the fact that the slowdown in the progress of government bidding under the epidemic affects the company's business expansion, the relative rigidity of cost-side expenditure, and the further growth of the company's R & D investment.
The revenue and profit of intelligent water services has increased, while the gross profit margin of equipment has decreased. In 2021, the company's intelligent water revenue was 191 million yuan, + 392.09% compared with the same period last year. The company transformed into a smart water comprehensive solution provider, leading to an increase in annual sales revenue. In 2021, the company's comprehensive gross profit margin year-on-year-2.87ppt to 62.73%, of which no negative pressure equipment / frequency conversion equipment gross profit margin year-on-year-3.98/-3.34ppt to 65.45% 3.98/-3.34ppt 58.44%, intelligent water information gross profit margin year-on-year + 3.19ppt to 70.95%.
Investment in R & D has increased, and operating cash flow is under pressure. In 2021, the company's expenditure rate was from + 1.3ppt to 7.7% compared with the same period last year, of which the R & D expenditure rate was from + 1.3ppt to 1.3%, mainly due to the company's increased investment in R & D personnel. The company's operating cash flow in 2021 was-45 million yuan, which was mainly due to the increase in sales leading to the payment to suppliers, the increase in various expenses, the increase in personnel input and the increase in the sales payback cycle.
Trend of development
It will be increased to the ground, and the layout of intelligent water affairs will be further improved. The company completed a non-public offering in April 2022 with an offering price of 11.76 yuan per share and a net fund of 959 million yuan, which is mainly used for the expansion of intelligent water industry chain and agricultural water market development. After the landing of the fixed increase, we expect that the company will further enrich the intelligent water product line and improve the market layout. We believe that the company's extension of product application scenarios to water purification plants will help to enhance the stickiness of cooperation with water companies, expand the scale of business and consolidate the position of the industry.
Smart water services drive performance growth, and employee stock ownership ensures long-term and steady development. In 2021, the company's intelligent water business grew rapidly, and invested 2 billion yuan to build Jiangsu Nantong intelligent water supply and drainage production R & D base.
We believe that the first-mover advantage of the company's layout in the field of smart water is obvious, and we are optimistic that the company will improve the manufacturing level of software and hardware and continue to drive performance growth through smart water. In April 2022, the company issued the draft employee stock ownership plan of "Yuanghang No. 1" and "Captain No. 1". We believe that employee stock ownership will help to deeply bind the core interests and ensure the long-term and sound development of the company.
Profit forecast and valuation
Due to the uncertainty that the pressure on government procurement may lead to the increase of company orders, the net profit in 2022 will be reduced by 34% to 240 million yuan, and the net profit in 2023 will be 300 million yuan. The current share price corresponds to 2022E/2023E 20.7amp 16.4x Pmax E. Maintain the outperform industry rating and lower the target price by 38% to 12.50 yuan, corresponding to 2022E/2023E 26.6 Universe 21.2 x Pmax E, which has 28.1% upside compared to the current share price.
Risk.
Equipment sales are not as expected, market competition aggravates the risk, and the risk of accounts receivable recovery.
