Incident: The company released its 2022 mid-year report, achieving revenue of 1,023 million yuan, an increase of 44.05% over the previous year, and Guimu's net profit of 72.23 million yuan, an increase of 39.36% over the previous year; of this, revenue was 637 million yuan in the second quarter alone, an increase of 31.28% over the previous year, and Guimu's net profit was 43.66 million yuan, an increase of 29.58% over the previous year. The performance fell above the median performance forecast, in line with expectations.
The business structure continues to be optimized, and the path for a steady increase in gross margin thereafter is clear. In the first half of the year, the company's mechanical and electrical engineering, design consulting, engineering contracting business, and equipment manufacturing achieved revenue of 3.31, 2.26, 0.64, and 366 million yuan respectively, up 20.45%, 22.68%, a decrease of 20.86%, and an increase of 168.66%; with the exception of the planned contraction of the civil engineering business, all other businesses bucked the trend. Looking at gross margin, the gross margins of mechanical and electrical engineering, design consulting, engineering contracting business, and equipment manufacturing were 9.37%, 42.49%, 1.77%, and 16.23%, respectively, down 4.9, 2.67, 2.82, and 6.25 percentage points from the previous year, respectively. The decline in the company's gross margin was mainly due to increases in personnel wages (equipment manufacturing also due to consolidation). Cash payments to and for employees during the reporting period were about 312 million yuan, an increase of 58.91 million yuan over the previous year. We believe that unlike traditional enterprises, about 70% were scientific researchers and technicians. Raising the income level of employees in the early stages of listing was conducive to further activating the company's growth vitality, but the employee wage increase was one-off. Subsequent increases in the company's gross profit margin will not expand synchronously. In the future, the upward trend path of the company's gross margin is clear, clean Profit growth is expected to continue to be higher than revenue.
The cost rate has declined markedly, and it is expected that there will still be plenty of room to explore in the long term. In the first half of the year, sales, management, R&D, and finance expenses rates were 1.15%, 8.01%, 4.41%, and -0.79%, respectively, and the total cost rate was 12.78%; the year-on-year decrease was 0.23, 1.26, down 1.21, and up 0.14 percentage points, respectively. The total cost rate decreased 2.56 percentage points. We determined that as the company's revenue expansion accelerates further, potential expenses will not expand linearly simultaneously, and there is still plenty of room for potential expenses to decline.
Furthermore, the actual tax rate in the first half of the year was 19.25%, an increase of 4.66 percentage points over the previous year, which affected some profitability.
The worst time of the year is over; stand at the low point of the 14th Five-Year Plan growth rate to see the future. We repeat that the driving force behind the company's rapid growth is the high increase in China's granary cold chain circuit, which is scarce: (1) China's state-owned granaries have restarted a new round of large-scale construction after a lapse of 20 years, opening up a five-fold level of space; (2) the cold chain is an essential path behind “common prosperity” and “consumption upgrading”. With the clarification of the top-level design of the 14th Five-Year Plan, the four-horizontal four-vertical network construction is expected to accelerate. It is expected that the compound growth rate of the industry will exceed 25% in 23-25, of which the growth rate of the COFCO related circuit is expected to exceed 50%. We suggest that behind the growth in the second quarter is that the company's two core research institutes are located in Wuxi and Beijing, respectively. They bucked the trend and were realized under the constraints of the epidemic. The probability is that they were both within the year and at the low point of the 14th Five-Year Plan. We expect the company to sign about 2.2 billion new orders in the first half of the year. Based on this, we estimate that the annual orders are expected to be close to 5 billion yuan. Compared with the new orders of 3 billion yuan last year, the growth rate is about 67%, a further increase from last year, and the growth rate of subsequent performance is expected to continue to rise month-on-month.
Investment analysis opinion: COFCO Engineering is a leading enterprise in the field of engineering services and equipment manufacturing for China's grain, oil and cold chain industries. We judge that the company is currently on the left side of its own alpha and industry beta. This is the beginning of COFCO's era of high growth.
We maintain that 2022 is the inflection point of the company's performance growth, and that 2023 is the year the company exploded. The 2022-2024 earnings forecast was maintained at 293 million yuan, 448 million yuan, and 672 million yuan respectively. Corresponding to the current PE is 31, 20, and 14X, respectively, maintaining the “buy” rating.
Risk warning: Granary construction and cold chain logistics construction are falling short of expectations; technology research and development is delayed, unable to meet market demand, and failure to keep abreast of technological trends; risk of loss of technicians