Core ideas:
1. Event
The company released semi-annual report, revenue 312 million (- 1.22%), return net profit 72 million (+ 20.77%), deduction non-return net profit 63 million (+ 8.85%), EPS about 0.23 yuan.
two。 Our analysis and judgment
(1) the growth of performance is in line with expectations, and the improvement of profitability is particularly obvious.
Revenue side: the company's revenue fell 1.22% in the first half of the year, mainly affected by the decline in the environmental protection business of Changkang, a subsidiary to be spun off, which had revenue of 44 million, down 13.8% from the same period last year.
Excluding the revenue contribution of Changkang Environmental Protection, the company's main business 2019H1 reached 268 million, an increase of 1.5% over the same period last year.
On the profit side: the company's home net profit increased by 20.77%. Excluding the profit contribution of 9.37 million of Changkang Environmental Protection, the company's main business 2019H1 achieved a net profit of 63 million, an increase of 61.5% over the same period last year, a substantial increase in performance growth and an improvement in operating cash flow. The reason is that, first of all, the gross profit margin of each business of the parent company has increased significantly, and the gross profit margin of cable and component business has increased by 7.84% and 9.01% respectively; secondly, other income such as the return of VAT has increased by 9.35 million yuan. Changkang Environmental Protection due to great changes in business structure, the decline in the proportion of military products, gross profit margin fell sharply 20pct, thus driving down the overall profit growth.
(2) to spin off Changkang Environmental Protection, pack light and set sail again
The company used to be mainly engaged in the development of national defense and military optoelectronic and thermal transmission products, including high-end transmission cables, components and optoelectronic transmission systems, etc., and its revenue has increased steadily in recent years. In 2016, the company acquired a 100% stake in Changkang Environmental Protection, and the underlying assets are engaged in the reverse osmosis seawater desalination equipment business for national defense and military industry. The performance commitments from 2016 to 2018 are not less than 4pm, 800pm, 5900 and 67 million yuan, respectively. The performance commitment of the target company in the first two years was successfully completed, but the notice of cancellation of the contract sent by a customer unit in July 2018 directly affected the contract amount of nearly 20 million, accounting for about 13.68% of the 2017 operating income, resulting in the failure to fulfill the 2018 performance commitment. We believe that the future orders of Changkang Environmental Protection may continue to be affected under the background of competitive procurement promotion of military products and stricter price audit of military products.
In 2018, the company has set aside 508 million of its goodwill impairment, and plans to transfer its 100% stake in Changkang Environmental Protection. Timely stop-loss means obvious. We believe that this move will help listed companies to refocus on the main business of photoelectricity and heat transmission products and set sail again.
(3) the company's share buyback has been completed, and employee incentives are on the horizon.
In July, the company completed about 5.54 million share buybacks, with an average repurchase price of about 10.8 yuan per share, all of which are to be used in employee stock ownership plans or equity incentive plans. We believe that the buyback shows the company's confidence in the future. In addition, due to the relatively low buyback price, the employee incentive will be more feasible than the previous incentive scheme, the enthusiasm of the staff is expected to be fully stimulated, and the company's sustainable development can be expected in the future.
(4) the reduction ratio of the actual controller is still the first time and belongs to the reasonable range.
Recently, the company announced that Ms. Yang Yumei, one of the actual controllers, plans to reduce her holdings by about 14.29 million shares (5% of the total equity) within six months. this reduction is the first reduction by the actual controller since the listing. The funds are mainly used for industrial incubation, reducing the risk of stock pledge and other capital requirements. We believe that the total shareholding of the actual controller is 59.25%, the first reduction of 5% is reasonable, and the impact of the suppression on the secondary market share price will be gradually offset with the growth of the company's performance.
3. Investment suggestion
Assuming that Changkang Environmental Protection still merges 100% in the next three years, the company's net profit in 2019, 2020 and 2021 is expected to be 118 million, 138 million and 166 million respectively, and the EPS is 0.41,0.48 and 0.57 yuan, respectively, and the current share price corresponds to 30x, 26x and 22x. The company's valuation level has certain advantages, and the growth of the main business performance has accelerated, maintaining the "recommended" rating.
Risk hint: the risk that the expansion of the military market is not up to expectations.