Key points of investment
The performance was in line with expectations, and rising set-top box business costs dragged down the company's performance. The company achieved revenue of 1,624 million yuan in 2017 (-17.99% year-on-year), net profit of 187 million yuan (-9.58% year-on-year), and EPS of 0.16 yuan. During the reporting period, the company's set-top box business was affected by a sharp rise in upstream raw material prices, causing costs to rise sharply. Profits fell sharply year over year and resulted in small losses, seriously hampering the company's overall performance. In the future, the company will accelerate the pace of transformation into the new energy vehicle and military special equipment industry to hedge against the adverse effects of the decline in the set-top box business, and as the company's fund-raising projects gradually reach production, performance is expected to resume rapid growth.
Intelligent electromechanical business: Benefiting from equipment upgrades and product technology upgrades. In 2017, the company's smart mechatronics business achieved revenue of 657 million yuan, a year-on-year decrease of 6.76%. The gross profit margin was 51.19%, a slight decrease of 1.84 percentage points. Under the strategic requirements of our military's mechanization and information-based construction, the Army's compensatory replacement and troop transformation have led to an accelerated replacement of weapons and equipment. The company is expanding its business around military intelligence and information-based mechanical and electrical equipment, which is expected to fully benefit in the future. At the same time, the company has continuously carried out intelligent, automated and networked upgrades on the basis of existing mechanical and electrical products to ensure the advanced nature of military products. Relying on its technological advantages in intelligent power supplies and power distribution, the company further expands into fields such as vehicle power and electrical systems, electronic information systems, motors and control systems, and continuously creates new industrial growth points.
New energy vehicle parts business: A new subsidy policy has been implemented, and rapid development can be expected. In the field of new energy vehicles, the company provides air conditioning compressors, charging piles and other products. The annual revenue was 157 million yuan, a decrease of 29.25% over the previous year, and gross margin decreased 14.28 percentage points to 29.93%. Affected by the adjustment of the subsidy policy, the growth rate of new energy vehicle sales slowed in 2017, the enthusiasm for charging station construction came under pressure, the company's revenue declined, and the cost of upstream raw materials rose, lowering the gross margin level of the business. With the gradual withdrawal of future subsidy policies and a market-driven shift in the industry, the company's demand for new energy vehicle parts products is expected to expand.
At the same time, the company's vehicle chargers and power supply products have been tested. The air conditioning compressors are technologically advanced, the performance is outstanding, the quality is mature and stable, and competitiveness has been significantly enhanced. The market share is expected to increase, and the company's prospects for the development of new energy vehicles are improving.
Set-top box business: Internal optimization and industrial transformation go hand in hand, and future profitability is expected to improve. In 2017, the company's set-top box business achieved revenue of 766 million yuan, a year-on-year decrease of 23.74%. The gross profit margin was 14.14%, a decrease of 9.75 percentage points. Affected by the sharp increase in raw material prices, the gross margin of the set-top box business declined significantly year-on-year. The company is expected to gradually improve the profitability of the set-top box business by adjusting prices to operators, optimizing the industrial structure, and reducing production costs. The company has accelerated product upgrades to cope with the decline in the traditional set-top box market. In the previous two years, it has been increasing the development and promotion of smart terminal products. The next-generation intelligent integrated terminal set-top boxes currently being developed have successfully entered the Beijing Gehua and CITIC Guoan markets.
risk factors. The performance of the digital set-top box market declined; military orders fell; and the prosperity of the NEV industry fell short of expectations.
Profit forecasts, valuations, and investment ratings. Considering the decline in set-top box business revenue and the impact of rising upstream raw material prices in the short term, we lowered the company's 2018/19 EPS forecast to 0.22/0.26 yuan (the original forecast was 0.23/0.38), and gave the company a 2020 EPS forecast of 0.32 yuan.
The current price is 6.62 yuan, corresponding to 2018/19/20 PE, which is 31/25/21 times, respectively. Considering the development prospects of the company's military business and the NEV business layout, the target price is 8.5 yuan to maintain the “buy” rating.
