Event

Tianyin Machinery and Machinery released its 2018 semi-annual report, during the reporting period, the company achieved operating income of 397 million yuan, an increase of 5.01% over the same period last year, and the net profit belonging to shareholders of listed companies was 75 million yuan, down 18.67% from the same period last year.

Comment

The spare parts of refrigerator compressor increased steadily, and the business of frequency conversion controller increased by 86.27% compared with the same period last year.

During the reporting period, the operating income of refrigerator compressor parts reached 347 million yuan, an increase of 9.67% over the same period last year. With the implementation of China's new energy efficiency standards and the EU's new version of home appliance energy efficiency labels, the market demand for energy-saving components such as frequency conversion controllers continues to rise. In the first half of the year, the company's frequency conversion controller business achieved sales revenue of 114 million yuan, an increase of 86.27% over the same period last year. The current market share of environmental protection and energy-saving products is relatively low, and there is plenty of room for upgrading in the future. Frequency conversion controller products will support the steady growth of the company's refrigerator parts business.

The delivery of some military orders is delayed, the performance of military business is lower than expected, and growth is expected to resume in the second half of the year.

In the first half of the year, the company's operating income of military electronics reached 50 million yuan, down 18.85% from the same period last year. Affected by the reform of the military establishment system, the delivery of some orders for military products has been delayed, resulting in a decline in business income and net profit of the military electronic business compared with the same period last year. During the reporting period, a number of military supporting businesses cultivated by Huaqing Ruida for a long time will enter the harvest period and will continue to contribute new orders in the future. The military business generally shows the characteristics of centralized delivery in the second half of the year, and we believe that the company's military business will gradually recover and maintain rapid growth in the second half of the year.

The proposed acquisition benefits to create the company, integrate the microwave components industry chain, and the stock buyback shows the company's confidence in development.

The company announced on July 19 that it intends to acquire 65% of the shares of the company in cash, and the two sides have signed a "letter of intent to invest." Chengdu Yiwei Chuang Technology Co., Ltd. is engaged in the design and production of microwave components, this acquisition will integrate the microwave components industry chain, is conducive to the company's unified product planning and research and development, forming technical and price advantages. On August 24, the company announced that share buybacks will be used to encourage employees or reduce registered capital in the future, which will help to further improve the company's long-term incentive mechanism.

Profit forecast

We estimate that the operating income of the company from 2018 to 2020 is 9.25,11.03 and 1.243 billion yuan respectively, and the net profit belonging to the shareholders of the parent company is 2.23,2.77 and 314 million yuan respectively, the corresponding EPS is 0.52,0.64 and 0.73 yuan respectively, and the corresponding PE is 24,19,17 times respectively.

Risk tips: lower-than-expected delivery of military orders, slow market expansion of new products, etc.