2018H1 net profit increased by 116.07%
The company released the 2018 mid-term report on the evening of August 21, 2018H1 achieved operating income of 536 million yuan (+ 130%), net profit of 100 million yuan (+ 116%), deduction of non-net profit of 92.7168 million yuan (+ 97%), corresponding to EPS 0.99 yuan (+ 60%), the performance was lower than expected. The substantial increase in the company's performance benefited from the rapid growth of diamond cutting lines, wireless charging coils and power batteries, and the lower-than-expected performance was mainly due to the sharp decline in demand for the diamond line in the photovoltaic industry after the 530 New deal, and the net profit in the second quarter fell 56.7% from the same period last year. We expect the company to make a net profit of 2.37 million yuan for 18-20 years, with a target price of 64.96 yuan to 69.6 yuan in 2018, maintaining the "overweight" rating.
The gross profit margin decreased by 0.35pct compared with the same period last year, and the net profit margin decreased by more than the gross margin.
The company's 2018 H1 net profit grew by 116.07%, which was lower than the year-on-year growth rate of operating income (+ 130.07%) by 14pct. The company's gross profit margin in the first half of the year was 39.60%, down 0.35pct from the same period last year, and the net profit rate was 18.74%, down 1.21pct from the same period last year. The decrease in net profit margin is greater than that of gross profit margin, mainly due to the increase in sales expenses (+ 353.8%) and operating expenses (+ 158.6%) resulting from the expansion of sales channels and the development of new products. In the first half of the year, R & D investment was 29.67 million yuan, an increase of 208.82% over the same period last year, accounting for 5.53% of revenue. 9 utility model patents were authorized and 13 patents were accepted. The company's continuous increase in R & D investment helps to improve the company's competitiveness.
Operating cash flow has improved significantly
The cash flow of the company's 2018H1 operating activities was 78 million yuan, an increase of 353.76% over the same period last year; the advance payment was 51 million yuan, down 35.4% from the end of the previous period. The reasons for the substantial improvement in the company's operating cash flow are as follows: (1) mainly due to the substantial increase in revenue from diamond cutting line products; (2) affected by the new policy in the photovoltaic industry, the company expects the demand for diamond line to decline in the second half of the year and reduce the procurement of raw materials.
The demand of Kumgang line is affected by the new photovoltaic policy, and the company's performance in the second half of the year is facing challenges.
Photovoltaic 530 New deal led to a reduction in domestic downstream demand, the Diamond Line is facing the possibility of a sharp decline in demand. The net profit of 2018Q1 was 87.93 million yuan, and the net profit of 2018Q2 was 12.55 million yuan. The net profit in the second quarter fell 56.7% from the same period last year, and 85.7% from the previous month. The prepaid account is 50.95 million yuan (- 35.4%). We think the company predicts that the demand for the diamond line may decline in the second half of the year and reduce the purchase of raw materials. The amount received in advance is 7.63 million yuan (- 70%), indicating that the downstream demand is weak. The company increases research and development and promotes cutting lines with finer diameter and higher quality to cope with the decline in demand. We believe that the company's R & D strength and cost control ability are good, and the market share may be further improved.
Maintain the "overweight" rating
The photovoltaic industry demand dropped sharply after the 530 New deal, resulting in lower-than-expected sales revenue of the Kumgang line in the first half of 2018. We have adjusted the profit forecast of the company's diamond line business, and expect to achieve 1.2408 billion revenue in 2018-2020 (the previous value is RMB 158920), and the net profit of homing is RMB 2.37 million, RMB 2.94 million, respectively, and the corresponding EPS is RMB 2.32, 2.88 and RMB 3.77 respectively. Comparable company's average valuation in 2018 is 23 times. In view of the company's high performance growth, strong competitiveness of the Diamond Line, and the high growth of wireless charging coils and lithium battery ears in the future, the company will be given 28-30 times PE (34-36 times the previous value) in 2018, corresponding to the target price of 64.96-69.6 yuan, maintaining the "overweight" rating.
Risk tips: the risk of high customer concentration; the risk of a sharp drop in the price of the diamond line; the risk of rising costs; and the risk that the growth rate of wireless charging coils and battery ears is not up to expectations.