Matters:

Net profit remained flat in 2012, falling 40%-60% in the first quarter. Zhaori Technology (300333) released its annual report on April 18. The company achieved revenue of 231 million yuan in 2012, an increase of 12.29% over the previous year, and achieved net profit of 79.2633 million yuan belonging to the parent company, a decrease of 3.44% over the previous year. The corresponding EPS is 0.71 yuan. At the same time, the company expects its first-quarter results to decline by 40%-60% year-on-year. At the same time, the company plans to pay 5 yuan for every 10 shares.

Key points:

The company's gross margin fell to 73.30% from 78.99% in the same period last year, but it remained at a higher level than its peers. Furthermore, the company's cost control situation is good. On the basis of large-scale promotion of new products, the sales expenses ratio has remained at the average level in the past. The increase in employee remuneration has caused the company's management expenses ratio to rise to 17.65% from 14.64% in the same period last year. After the company's main business, payment encryption devices, experienced rapid growth in 2010 and 2011, the product entered a period of maturity and market demand stabilized. In 2012, as the market penetration rate of financial instrument anti-counterfeiting products increased, market competition further intensified. Since the second half of 2012, the product sales prices of major companies in the industry have dropped significantly, causing the profit margin of the entire industry to drop significantly. Although the company completed the sales promotion of the second-generation electronic payment password device CI980 ahead of schedule in the second half of 2012, mitigating the downward trend in the company's product prices to a certain extent and making the gross margin of the company's products still in the leading position in the industry, the gross margin of the company's products has declined significantly since the second half of last year compared to the past three years. Within the industry, the company remains in a leading market position. In 2013, the sales volume of the company's electronic payment cryptographic devices was basically the same year over year, but due to a large year-on-year decline in gross sales profit, the company's revenue growth this year is still under great pressure. At present, the paper printing cloning equipment vigorously developed by the company launched a prototype in the first half of this year. The sales model can be leased or bought out. It is expected that small-batch sales and sales revenue will be generated in the second half of this year.

Since the company's payment encryption devices are still under pressure from falling prices this year, the company's gross margin will still decline this year. We expect the EPS that the company can achieve in 2013-2014 to be 0.79 yuan, 0.91 yuan and 1.02 yuan respectively, corresponding to 20.24 times, 17.58 times and 15.71 times PE, respectively. It will take some time for the company's new product to be profitably released. The adjusted target price was 20.93 yuan, and the rating was reiterated.