Performance review
1H22 performance is in line with our expectations
The company announced 1H22 results: 1H22 achieved income of 361 million yuan, year-on-year-15.0%; return to the mother net profit of 59 million yuan, year-on-year-26.0%; deducted non-net profit of 43 million yuan, year-on-year-38.68%. Corresponding to 2Q22 income of 190 million yuan, year-on-year-15.5%, month-on-month + 11.0%; return-to-mother net profit of 32 million yuan, year-on-year-25.9%, month-on-month + 24.2%; deduction of non-net profit of 25 million yuan,-27.6%, month-on-month + 44.4%. The performance is in line with our expectations.
Trend of development
1H22 outperformed the industry in revenue and performance, and the high growth of non-road market led to the improvement of profitability. According to the China Automobile Association, due to repeated epidemics, slow infrastructure start and other factors, 1H22 commercial vehicle sales were-41.1% year-on-year, which had an impact on the company's EMS product sales. The company's 1H22 revenue is-15.0% compared with the same period last year. Excluding share payment fees, the homing net profit is 85 million yuan, + 7.9% bot 1H22 gross profit / excluding share payment fees, the homing net profit rate is 43.0%, 25.3%, year-on-year + 13.5/+6.7ppt. The company's revenue and performance outperformed the industry and showed a month-on-month improvement, with a significant improvement in profitability, including: 1) changes in product structure and an increase in the proportion of sales of high-margin ECU products (country 4 and country 5 emissions). 2) the customer structure is improved, and the gross profit margin of the newly expanded customers is higher; 3) the proportion of technology development income with high gross margin is higher than that of the previous period.
During the critical period of business transformation and upgrading, R & D investment continues to grow and accumulate long-term development momentum. The R & D expense rate of 1H22 is 23.7%, which is + 15.7ppt compared with the same period last year. The main reasons include: 1) the development of electronic control system for GDI passenger vehicles, the development of electronic control systems for hybrid vehicles, and the VCU and MCU projects for electric vehicles, which require large R & D investment for new business; the number of R & D personnel increased by 76.9% to 598 compared with the same period last year, accounting for 74.1% of the total number of the company.
2) in order to bind the core technical personnel, the company implements the 2021 equity incentive plan and provides for the payment of shares. We believe that the "from 0 to 1" stage of software system development is a stage with large investment but little return, and the return from the "1 to N" stage is expected to see rapid growth; at present, the company's GDI passenger cars and hybrid products have entered the stage of mass production and have obtained a number of new fixed points one after another, and we believe that the company's new business is expected to drive into the fast lane of growth.
It is proposed to acquire the injector production line to improve the layout of the industry chain and further consolidate the competitive advantage of EMS products. In May 2022, the company announced that it intends to obtain a non-exclusive license for some intellectual property rights and know-how for passenger cars and light trucks owned by Vitesco Technologies GmbH and its related parties in China, and to purchase the fuel injector production line of related parties. We believe that this acquisition will help the company to accumulate technical strength, improve the stability of the supply chain and reduce procurement costs, so as to consolidate the overall competitive advantage of EMS business.
Profit forecast and valuation
The current share price corresponds to the price-to-earnings ratio of 32.2 per cent of earnings for 22April23, leaving the earnings forecast unchanged for 22A23.
Maintain the outperform industry rating and maintain the target price of 130 yuan, corresponding to the price-to-earnings ratio of 33.8 times earnings for 22max in 23, which is 4.8% higher than the current stock price.
Risk.
Higher risk of customer concentration, accelerated risk of electrification to gasoline EMS replacement process, less risk of operating cash flow, risk of inventory growth, risk of chip purchase, risk of impairment of accounts receivable.