Three sectors, high-quality development: The company was born out of a state-owned scientific research institute. Starting from research on the basic rules and mechanisms of adaptability of electrical products, the company gradually developed three business areas of quality and technical services (18%), intelligent equipment (45%), and environmentally friendly resins and coatings (36%) around the electrical industry's standards, testing technology, system integration, power conversion, advanced control, and materials. The company's revenue growth rate in 17-19H was +22.85%/+33.74%/21.38%, net profit growth rate was -14.58%/+84.91%/33.54%, gross margin was 29.38%/29.72%/30.18%, respectively, and ROE in 17-18 was 17.16%/18.98%, respectively, and the overall high-quality development of the three business segments. Research is the cornerstone, and continuous high R&D investment: the company focuses on electrical products and adheres to the path from basic research to the transformation of scientific and technological achievements. Relying on the National Heavy Industry Laboratory, a series of core technologies have been formed, and it has relevant technical capabilities to lead or participate in the formulation and revision of industry standards. At the same time, a high-quality R&D team was formed during the long-term R&D process. Among the 3114 R&D personnel, there are 9 experts on special allowances from the State Council and 32 professor-level senior engineers. Huang Wenxiu, the chief expert, is the current chairman of the IEC. The company's R&D expenditure ratio continued to be above 6% until 19H, of which it remained above 7.5% in 16-18. The concentration of the home appliance testing industry needs to be increased, and the company's leading position is stable. The domestic home appliance testing industry is developing rapidly, with a market size of 3.7 billion yuan in 2018 and a CAGR of about 10% in 16-18. Currently, the industry pattern is relatively scattered, and concentration needs to be improved. The company is a leader in the domestic home appliance testing industry. It has the most complete range of relevant testing and certification qualifications among comparable domestic and foreign companies, leading in the number of standards set and the number of testing projects carried out. In the future, as industry concentration increases & fundraising projects advance, there is plenty of room for sector business growth, and gross margin is expected to remain at a high level. Intelligent equipment has great potential for growth. The intelligent transformation of the home appliance industry is still accelerating. In particular, countries along the “Belt and Road” have high demand for intelligent equipment. China Electric has system integration capabilities for complete equipment, which can provide customers with overall solutions. In its long-term development, it has accumulated customers from well-known home appliance brands including Algeria's Eurl Saterex, Egypt's Unionaire Group, and India's Havells, enjoying the dividends of the Belt and Road. In addition, the company's lithium battery testing technology has reached the same technical level as the domestic leader Hangke Technology. Customers include mainstream domestic battery manufacturers such as BYD, Guoxuan Hi-Tech, Tianjin Lishen, Ningde Shidai, and Ningde New Energy. 19Q1 has confirmed 180 million dollars in revenue, exceeding 110 million for the full year, and has great potential for sector growth. The expansion of polyester resin production supports the growth of the environmentally friendly resins and coatings sector. Powder coatings and water-based coatings are alternatives to traditional VOC coatings. They have better performance and are more environmentally friendly than VOC coatings. Polyester resin is an upstream material for powder coatings, and demand is growing rapidly. The company's polyester resin production ranks among the top three in the country. The capital raised plans to invest 250 million yuan to further increase production capacity from 55,000 tons to 80,000 tons, which is expected to bring the company an increase in revenue of 3.1 million yuan and an increase of 75 million dollars in gross profit. Profit forecast and investment rating: It is estimated that the company's net profit from 19-21 was 232 million /287 million /351 million yuan, respectively, a year-on-year difference of +12.3%/+23.7%/22.1%, respectively, and EPS after IPO, 0.57/0.71/0.87 yuan/share respectively. The company is the leader in the domestic home appliance testing industry, and there is plenty of room for growth in intelligent equipment. Based on the company's comparable corporate valuation level, we believe that the company should be given 28-33 times PE in 2020 as a reasonable valuation for the secondary market, corresponding to a reasonable market value range of 8.04 to 9.47 billion yuan for the secondary market, with a reasonable valuation per share of 19.9-23.4 billion yuan. Risk warning: fluctuations in downstream industries; technological iterations; falling product prices; rising raw material prices; increased competition, etc.
中国电器(688128):家电检测龙头 智能装备高质发展
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