Event description

Zhen'an Science and Technology release report: revenue in the first half of 2022 was 430 million yuan, an increase of 30% over the same period last year, and the attributable net profit was 55 million yuan, down 16% from the same period last year. In the second quarter alone, the income was 200 million yuan, up 12% from the same period last year, and the attributable net profit was 22 million yuan, down 38% from the same period last year, and the non-net profit was down 24% from the same period last year.

Event comment

Income growth slowed down periodically in the second quarter, and Changzhou Green thickened its shock absorption income. The company's revenue in the first half of the year increased by 30% compared with the same period last year, of which Q1 and Q2 were 51% and 12% respectively. The periodic slowdown in income growth in the second quarter was mainly due to the delay in the construction of public buildings and other projects under the pressure of the epidemic and local finance. In the first half of the year, the company's isolation revenue grew by 8% compared with the same period last year, and the damping revenue grew by 109% compared with the same period last year, which is higher than the contribution of Changzhou Green, a subsidiary mainly acquired by isolation (56 million in the first half of the year).

The national sales network continues to be laid, and the expansion of business outside the province is accelerated. The revenue growth rates of the company's four sales regions in southwest, northwest, North China and South China in the first half of the year were + 6%, + 108%,-8% and + 572%, respectively, reflecting the achievements of the national sales network. In particular, great growth has been achieved in South China, where the company's traditional sales are weak. The proportion of non-provincial income of the company has further increased, with 35%, 23%, 20% and 19% in southwest, northwest, North China and South China respectively, and the external share of Yunnan Province has reached more than 65%. Compared with the previous increase (20H1, 20H2, 21H1, 21H2 is 33%, 38%, 57%, 63% respectively).

Gross profit margin rebounded sharply in the second quarter from the previous quarter. The company's first-half gross profit margin was about 42.5%, down 4.1pct from a year earlier, mainly due to a sharp rise in steel prices and the weak profit of newly acquired Changzhou Green (9.7% net profit in the first half). From a regional point of view, the southwest district inherits the company's traditional advantages, with a higher gross profit margin of about 54%, unchanged from the same period last year, and a total gross profit margin of about 35% in other regions, down 8.3pct from the same period last year. From a product point of view, the isolation gross profit margin is about 42.8%, down 2.4pct from the same period last year, and the damping gross profit margin is about 40.2%, down 10.0pct from the same period last year. The decline in gross profit margin of non-provincial business and isolation business is also greatly affected by Changzhou Green. In the second quarter alone, the gross profit margin was about 48.1%, an increase in 0.9pct over the same period last year, a sharp rebound in 10.6pct compared with the previous year, or a higher gross profit margin for some single projects delivered for Q2, and many of the projects delivered by Q2 have been signed on the basis of high steel prices, so the gross profit margin has returned to a reasonable level. Taking into account the sharp decline in steel prices since June, the second half of the year may continue to usher in profit flexibility.

Financial expenses and credit impairment drag on net profit. During the first half of the year, the company's premium rate was about 22.3%, a decrease of 0.5pct compared with the same period last year, in which the sales, management, R & D and financial rates changed respectively-2.8,1.4, + 0.6 and + 3.1pct. Sales, management fees have dropped a lot, in addition to diluted income, but also mainly due to the impact of the epidemic, the company's sales promotion activities, travel and other expenses decreased. The sharp increase in financial rates (3.1pct) is mainly due to the increase in interest charges caused by the new convertible bond financing in the current period. In addition, the company set aside a large credit impairment loss of about 15 million, compared with about 3 million in the same period last year, mainly due to a larger proportion of older public construction projects. In the end, the net profit rate of the company in the first half of the year was 12.7%, down 7.0pctjie from a year earlier to 10.9% in the second quarter, and 9.0pctjie in the second quarter compared with the same period last year. Despite the rebound in gross profit margin, the net profit declined in the second quarter, mainly reflected by interest expenses and credit impairment.

Operating cash flow has improved significantly. The net cash flow of the company's operating activities in the first half of the year was about 41 million yuan, compared with-98 million yuan in the same period last year. In terms of the cash-to-income ratio, it was 0.90 in the first half of this year, up 0.30 from the same period last year, and the company strengthened its control over payback when the industry's capital chain was tight; in terms of cash-to-cash ratio, it was 1.16 in the first half of this year, up 0.36 from the same period last year, mainly due to the upward trend in steel prices. The turnover of accounts receivable in the first half of the year is 248 days, still up 21 days from the same period last year, and the financial pressure on the industry is still large.

It is estimated that the net profit attributable to 2022-2023 is 2.3yuan and 650 million yuan, corresponding to the valuation of PE 63, 22 times, continue to recommend.

Risk hint

1. The market landed later than expected

2. The price of raw material steel has risen sharply.