Key points of investment
Incident: The company announced its third quarterly report that it achieved revenue of 653 million yuan in the first three quarters, an increase of 42.00% over the previous year; Guimu's net profit was 79 million yuan, an increase of 0.46% over the previous year; and after deduction, Fumo's net profit increased 11.19% year on year.
There was an inflection point in performance in Q3, revenue and net profit returned to the growth range, and profitability improved.
According to company announcements, Q3 achieved revenue of 222 million yuan in a single quarter, up 73.45% year on year; net profit of 24 million yuan, up 85.53% year on year; net profit after deduction was 23 million yuan, up 105.09% year on year; Q3 gross margin was 42.88%, down slightly 0.02 percentage points from the same period last year; net interest rate was 10.86%, up 0.95 percentage points from the same period last year. Overall, performance growth and profitability were in line with expectations.
The seismic isolation industry is a Chaoyang industry with more than ten times the market space. The company's expansion against the market fully demonstrates confidence. Compared with traditional anti-seismic technology and products, earthquake damping has obvious advantages. After the implementation of the iconic policy “Regulations on the Administration of Seismic Resistance in Construction Projects”, the industry evolved from quantitative to qualitative changes. The area covered by mandatory policies was greatly expanded, and the earthquake mitigation paradigm in Yunnan Province was gradually promoted throughout the country. According to our estimates, the market space of the seismic isolation industry will reach 23.605 billion yuan by 2025, an increase of more than 10 times compared to 2021. The company plans to issue shares to Wells Fargo Fund to raise 250 million yuan to expand production capacity. The reverse market expansion fully demonstrates confidence in the industry and the company.
Standard development+technology leading+capacity expansion+supply of overall solutions, the company's leading position is quite remarkable. 1) Standard setter and guide: The company has promoted the formulation of many local and national standards with its leading position in the industry, and the product standards produced by itself are higher than national standards. With the further promotion and application of seismic isolation technology, national standards for seismic isolation products are expected to be further improved, and the company has a great first-mover advantage. 2) Industry pioneer and leader: Academician Zhou Fulin, an executive of the company, is a fighter in the shock absorption industry. To contribute to the development of China's earthquake mitigation industry, Academician Zhou Fulin's workstation set up by the company has strong R&D capabilities and a high level of product manufacturing process. In the past two years, the proportion of the company's R&D personnel has been over 15%, and the proportion of R&D investment has continued to increase. 3) Providing overall solutions: Due to the non-standardisation of products and service customization in the shock absorption industry, design and construction units lack professional talents, so higher requirements are placed on manufacturers, and the company has the ability to supply overall solutions, which is scarce in the industry. 4) Nationwide promotion of Yunnan experience: Due to its geographical reasons, Yunnan is the birthplace of technology and standards for China's earthquake mitigation industry. The company started in Yunnan and is deeply involved in Yunnan. It has unique location advantages, and with the implementation of policies and the promotion of the industry, Yunnan's case and experience is being promoted nationwide. 5) Full orders: After the company's IPO and debt-conversion fund-raising projects are put into operation, a total of 110,000 units/year will be added to the production capacity of shock absorption products; as of April 25, 2022, the company's main in-hand orders and intended orders totaled 946 million yuan (tax included), which is 141.07% of the company's revenue in 2021. Full production capacity and orders provide sufficient impetus for high performance growth.
Profit forecast and investment rating: We basically maintain our estimate that the 2022-2024 EPS will be 0.80, 1.53, and 2.61 yuan respectively. The corresponding PE will be 57, 30, and 17 times, maintaining the “buy” rating.
Risk warning: The penetration rate of the earthquake mitigation industry did not meet expectations, business risks increased under the impact of the epidemic, etc.