Chutian Science and Technology is a leading domestic pharmaceutical equipment manufacturer. In the short term, the COVID-19 epidemic has led to a phased imbalance between supply and demand in the global biopharmaceutical supply chain, and domestic pharmaceutical equipment companies have ushered in "Import substitution & overseas layout".

Good opportunity, the company is full of orders on hand; in the medium to long term, the company adheres to the strategic planning of "one vertical, one horizontal and one platform". On the one hand, through mergers and acquisitions of enterprises with unique business advantages and competitive strength, supplement the capacity of preparation processing and back-end packaging equipment, on the other hand, actively around the biopharmaceutical upstream consumables industry chain for forward-looking layout, is expected to further open the space for long-term growth. To sum up, we give the company 18 times PE in 2022, corresponding to a target price of 22 yuan, maintaining a "buy" rating.

Revenue grew rapidly in a single quarter, and the profit growth rate remained steady after deducting the impact of equity incentives. In the first three quarters of 2022, the company achieved operating income of 4.495 billion yuan, an increase of 22.06% over the same period last year, and a net profit of 463 million yuan, an increase of 15.32% over the same period last year. Deducting the non-return net profit of 451 million yuan, an increase of 21.39% over the same period last year, we believe that the slower growth of the company's profit end than the income is mainly due to the influence of equity incentive fees. The company set aside 71.19 million yuan of equity incentive fees in the first three quarters of 2022. After deducting this effect, the company's net profit in the first three quarters was 523 million yuan, an increase of 30.41% over the same period last year. The net profit after deducting non-return was 511 million yuan, an increase of 37.68% over the same period last year.

In a single quarter, the company's operating income in the third quarter was 1.624 billion yuan, an increase of 25.81% over the same period last year, and its net profit was 163 million yuan, down 1.03% from the same period last year. After deducting the non-return net profit of 157 million yuan, an increase of 14.76% over the same period last year, we expect the company to set aside 23.37 million yuan for equity incentive fees in the Q3 quarter. after deducting this effect, the net profit of Q3 is estimated to be 183 million yuan, an increase of 11.02% over the same period last year, deducting the non-return net profit of about 176 million yuan, an increase of about 30% over the same period last year. In addition, the company lost 7.29 million yuan in credit impairment in the first three quarters (3.39 million yuan in credit asset impairment in the same period last year) and 7.61 million yuan in asset impairment loss (5.75 million yuan in asset impairment loss in the same period last year). If excluding this impact, the company's profit growth rate is even faster.

The company's expense rate is well controlled, and Romaco is expected to be under short-term pressure under the European energy crisis. The company's gross profit margin in the first three quarters was 37.47%, down 1.27pcts from the same period last year (we judge that it is mainly due to the rise in raw material prices and the decline in Romaco profitability under the European energy crisis-2022H1 subsidiary Romaco operating income of 531 million yuan, a decrease of 23.34% year-on-year, net profit of-48 million yuan, a decrease of 405.08% over the same period last year) and net profit of 10.50% Year-on-year decline of 0.53 1.04/-0.38/-0.03/-0.20pcts-the company's sales expense rate / management expense rate / R & D expense rate / financial expense rate changed in the first three quarters compared with the same period last year-1.65pcts (cumulative decrease). In a single quarter, the company's Q3 gross profit margin was 37.69%, down 1.24pcts from the same period last year, and the net profit rate was 10.43%. Year-on-year decline of 2.78pctsWhile-the company's Q3 sales expense rate / management expense rate / R & D expense rate / financial expense rate changed respectively compared with the same period last year-1.10/-0.13/+0.14/-0.05pcts (cumulative reduction in 1.14pcts). At the end of the first three quarters of 2022, the net cash flow generated by the company's operating activities was-465 million yuan, a decrease of 1.731 billion yuan compared with the same period last year, mainly due to the increase in cash paid for the maturity and acceptance of notes payable by the company during the ① reporting period; in response to the tense situation in the global supply chain, ② increased the purchase payment due to the large stock of key materials; during the ③ reporting period, the company paid employees the year-end bonus of the previous year. Due to the epidemic, the cross-regional flow of ④ in some areas has been affected, the production of some customers has been blocked, and the return of sales has slowed down.

The proposed acquisition of Chutian Feiyun minority stake is expected to further expand the product line and profitability. Prior to this, on July 10, the company announced that it planned to purchase the shares corresponding to the 11.6 million yuan contributed by Ye Dajin and Ye Tiantian, which were jointly held by Ye Dajin and Ye Tiantian. After friendly negotiation among all parties to the transaction, the stock issue price of the assets purchased by this issue is 13.43 yuan per share, which is not less than 80% of the average stock price of the company in the 60 trading days before the pricing benchmark. After the completion of this acquisition, Chutian Feiyun will become a wholly owned subsidiary of Chutian Technology. Chutian Feiyun Department of listed companies and the former core team of Zhejiang Feiyun Technology Co., Ltd. was jointly established in 2017, which is an important step in the strategic planning process for listed companies to gradually implement "one vertical, one horizontal and one horizontal platform". Chutian Feiyun has produced obvious channel coordination / R & D coordination / management coordination with listed companies. In order to make the synergy effect bring more performance contribution to the listed companies in the future, and further strengthen the competitiveness, risk resistance and sustainable development ability of the company in the field of pharmaceutical equipment, the listed companies plan to acquire the remaining minority shareholders' rights and interests. Chutian Feiyun will be fully integrated into the listed company system. The income and net profit of Chutian Feiyun: 30,0163,97.18 million yuan in 2020, 432.85,83568 million yuan in 2021 (YOY + 144% Universe 324%), and 2022H1 2533.47Universe 4.1073 million yuan respectively-the annual profitability (net interest rate) in 2021 is significantly higher than that of listed companies as a whole (19.3% vs 10.88%).

Risk factors: the risk that Romaco integration is not as expected; the risk that order growth is not as expected; the risk of performance fluctuation caused by COVID-19 epidemic.

Profit forecast, valuation and rating: Chutian Technology is the leading domestic pharmaceutical equipment manufacturer. In the short term, the COVID-19 epidemic has led to a phased imbalance between supply and demand in the global biopharmaceutical supply chain. Domestic pharmaceutical equipment companies ushered in the opportunity of "import substitution & overseas layout", and the company has full orders on hand. In the medium and long term, the company adheres to the strategic planning of "one vertical, one horizontal and one platform". On the one hand, through mergers and acquisitions of enterprises with unique business advantages and competitive strength, to supplement the capacity of preparation processing and back-end packaging equipment, on the other hand, actively around the biopharmaceutical upstream consumables industry chain for forward-looking layout, is expected to further open the space for long-term growth. To sum up, we maintain that the company's EPS forecast from 2022 to 2024 is 1.18pm 1.44max 1.76RMB respectively, and the current price corresponding to PE is 14x/11x/9x respectively. We refer to comparable companies (East Fulong, Tailin Biology, Mensong International, Xinhua Medical, Canaan Technology, etc.) with an average PE of 19 times in 2022, and give the company 18 times PE in 2022, corresponding to a target price of 22 yuan, maintaining a "buy" rating.