Dynamic

The company announced results: 2012 and 1Q2013 revenue increased 4%, 11% to 710 million, 180 million, but net profit fell 38%, 47% to 33 million, 5 million, recorded EPS 0.17 yuan, 0.03 yuan, respectively, lower than expected.

Comment

Profitability declined significantly and the performance fell short of expectations. The company's 2012 and 1Q2013 revenue both achieved positive growth of 4% and 11% respectively. In terms of business, the single-digit revenue of packaging equipment for the beverage industry declined in 2012, while non-beverage equipment grew high but accounted for a small proportion. Overall, under the adverse demand situation, the company's revenue performance is still not satisfactory. The overall gross profit margin fell 2.6% in 2012 and 1Q2013 respectively compared with the same period last year, while the expense rate is still rising rigidly, and the decline in profitability led to a decline in performance that exceeded expectations.

The high growth of non-beverage packaging equipment business is only a structural bright spot and its overall contribution is limited. The company cut into the automatic packaging business of the food and daily chemical industries earlier, and has benefited from the accelerated demand for automation in recent years, with a growth rate of 50% to 60% in the past two years, but at present, the equipment is still mainly located in the middle and low end demand, and the latest gross profit margin is only 20%. At present, revenue accounts for only 13%, and the overall contribution is limited.

The profitability of the main business will still be tested in the medium term: demand has slowed down, while the localization process of foreign giants has accelerated and the strategy is more targeted. Domestic beverage demand slowed down obviously due to plasticizer and other problems in 2012, resulting in a slowdown in capital expenditure of beverage companies, which constitutes an external environment that is not conducive to the operation of the company. In terms of competition, the company, as a domestic leader, has gradually received higher attention from several global oligarchs such as Germany's Crones in terms of competitive strategy (Crones2012 annual global income of 2.7 billion euros, China's income of 400 million euros, about 4.5 times), mainly reflected in two aspects: the localization process of foreign giants such as Crones accelerated significantly in 2012, and service efficiency and cost improved significantly. As a pursuer, the company has not penetrated into all the leading beverage companies in the customer structure (there are only Coca-Cola Company / Uni-President / Yibao and so on), and the product types are not comprehensive enough. Foreign giants began to adopt more targeted pricing strategies based on the differences in customer and product structure, which had a direct adverse impact on the company's order quotation. Generally speaking, in the oligopoly pattern of global beverage packaging equipment, the company, as the domestic leader, has been rapidly catching up with the equipment level in recent years, and the customer structure has been improved, which is still worth paying attention to in the long run, but in the short and medium term, as the downstream demand slows down, the competition strategy of foreign oligarchs is more targeted, and the company, as a pursuer, still faces a test of profitability in the medium term and downgrades its rating to neutral.

Earnings forecast adjustment, rating adjustment and investment recommendations due to the decline in profitability due to the slowdown in downstream demand and intensified competition, the company's net profit margin was reduced from 7% to 4%, and the revenue forecast by 2013 was reduced by 8% to 820 million. The adjusted EPS forecast is 0.16 yuan. For the first time, the 14-year revenue forecast is 990 million yuan, and the EPS forecast is 0.2 yuan. The current share price corresponds to a price-to-earnings ratio of 42x and 34x, respectively. As a catch-up, the company's long-term outlook is still worth waiting for, but profitability faces the challenge of slowing demand growth and intensified targeted competition in the medium term, and its rating is downgraded to neutral.