Main points of investment
The performance is lower than expected, and the business of new energy and set-top box is a drag on the company's performance. The company's 2018H1 realized revenue of 720 million yuan (year-on-year-3.43%), net profit of 73.69 million yuan (year-on-year-18.89%) and EPS of 0.65 yuan. During the reporting period, the company's new energy auto parts business suffered a small loss due to the impact of the new subsidy policy and intensified competition in the industry, and the set-top box business also suffered a loss due to the continuous rise in the price of upstream raw materials. The company will accelerate the transformation to the new energy vehicle and military special equipment industry. In the future, with the gradual contraction of the set-top box business, the expansion of the military business scale and the enhancement of the competitiveness of the new energy vehicle business, the performance is expected to stabilize and pick up.
Intelligent mechanical and electrical business: benefit from the accelerated upgrading of equipment and the promotion of new projects. 2018H1's intelligent mechanical and electrical business achieved revenue of 337 million yuan, an increase of 12.91% over the same period last year, and gross profit margin of 46.14%, down 3.03%. With the deepening of our army's mechanization and information construction, the upgrading of ground weapons and equipment is accelerated, and the company is expected to fully benefit. While expanding the category of intelligent mechanical and electrical products, the company further promotes the construction of new projects, upgrading in the direction of information, intelligence and automation. with the promotion of fund-raising project construction, intelligent mechanical and electrical business is expected to continue to grow rapidly.
New energy auto parts business: a small loss in the short term, long-term competitiveness is expected to improve. 2018H1's new energy vehicle business achieved revenue of 37 million yuan, down 18.96% from the same period last year, and gross profit margin rose 3.30 percentage points to 34.66%. Affected by the new subsidy policy and increased competition in the industry, the new energy automobile parts business suffered a small loss in the short term. According to the China Automobile Association, the production and sales of new energy vehicles completed 504000 and 496000 respectively from January to July 2018, an increase of 85% and 97.1% respectively over the same period last year. While strengthening the performance and cost control of electric air-conditioning compressors, vehicle chargers, charging piles and other products, the company continues to cultivate, introduce and develop other parts business, and at the same time actively open up mainframe factory customers. the charging and power business will be developed to vehicle and module products, and the competitiveness of new energy vehicle business is expected to be further enhanced in the future.
Set-top box business: gradually shrink the scale, loss momentum is expected to curb. In the first half of 2018, the company's set-top box business achieved revenue of 329 million yuan, down 11.72% from the same period last year, and gross profit margin 11.83%, down 4.4 percentage points. Affected by the rise in the price of upstream raw materials, the set-top box business is still in a state of small loss. By controlling the scale of the loss-making business and improving the management level, the company is expected to curb the loss momentum of the set-top box business. In the future, the company will gradually focus its development on new energy electric vehicles and military equipment industry, and the expansion of the business scale of the two emerging sectors is expected to hedge the impact of the decline in set-top box business.
Risk factors. The performance of the digital set-top box market has declined; military orders have declined; and the prosperity of the new energy vehicle industry has fallen short of expectations.
Profit forecast, valuation and investment rating. Taking into account the impact of the rise in raw material prices for set-top boxes in the first half of the year and the decline in the sales scale of new energy auto parts business, we lowered our company's annual EPS forecast for 2018-19-20 to 0.20max 0.24max 0.29 yuan (the original forecast was 0.22max 0.26max 0.32, respectively). The current price is 3.92 yuan, corresponding to the PE of 2018-19-20 is twice that of 20-16-13. Taking into account the industry development opportunities faced by the company's military business and the competitiveness of the new energy vehicle business is expected to continue to improve, maintain the "buy" rating, the target price of 4.8 yuan.
