Taiyong Changzheng (002927) First Coverage Report: Emerging Low-Voltage Electric Companies Positioning in the Middle and High-End Markets

平安證券 ·  01/02/2020  · Researches

The gross profit margin of double power supply products is high, and the company is industry-leading in technical strength: since its inception, the company has been located in the middle and high-end project market, with two major brands: "TYT" double power conversion switch and "Changjiu" distribution appliances. The company is one of the drafting units of the national standard for dual power products, and foreign investors such as Schneider are the only domestic brands with high-end technologies such as neutral line overlap switching. The products have been widely used in data centers, rail transit and other high-end projects. The gross profit margin of the company's dual power supply products has been stable and higher than that of its peers, which shows that it has a strong premium ability by virtue of its industry-leading technical strength.

To locate the high-end project-oriented market of low-voltage appliances, there are many project cases in rail transportation, data center and other fields: the company has been positioned in the high-end project-based market since its inception. Past project cases include Shenzhen Metro, Chengdu Metro, China Mobile data Center, Shenzhen Jingji 100, Beijing Capital Airport, Petrochina Company Limited Ningxia Refinery, etc., covering key infrastructure, building venues and public construction areas. We believe that the company's success in the project-based market is mainly due to the technical advantages of the company's product side and the mature project-based marketing team; several successful project cases in the past are not only evidence of the competitiveness of the company's industry, but also laid a good foundation for the company to accelerate the development of the project-based market in the future.

Benefiting from real estate completion and 5G ubiquitous construction, the low-voltage electrical appliance industry is booming: as the real estate enters the completion cycle and the concentration of the real estate industry increases, the demand for medium-and high-end low-voltage electrical appliances is growing. In addition, according to the 5G construction plans of the three major operators, it is estimated that about 1 million 5G outdoor macro stations will be built in 2020, corresponding to the new demand for low-voltage electrical appliances worth more than 7 billion yuan. The State Grid issued a white paper on ubiquitous construction in October 19, and it is expected that with the promotion of ubiquitous power Internet of things construction in 2020, the demand for intelligent low-voltage electrical appliances is gradually increasing. The company is currently a strategic cooperation supplier for many of the top 100 real estate enterprises in China, including Jinmao, overseas Chinese Town and Xuhui, etc. Past project cases in the communication field include projects such as Shanghai Zizhu data Center and Guangdong Telecom base station, and the newly launched TBBQ7 intelligent dual power conversion switch is expected to significantly benefit from the prosperity improvement of low voltage appliances and the penetration of intelligent low voltage appliances.

Issue equity incentive plan to achieve the binding of core employee interests: the company released its first equity incentive plan since its listing on December 17, 2019, with the performance evaluation target based on 19-year revenue and net profit. 20-21-22 annual revenue or net profit growth rate of 10% 21% The incentive targets are a total of 84 core employees of the company, with a total of 1.686 million rights and interests to be granted, accounting for 0.99% of the current total share capital of the company. We expect that through this equity incentive plan, the company is expected to achieve the binding of the interests of the controlling shareholders and core employees, which is conducive to the continued growth of the company in the next few years.

The synergy effect of the fund-raising project gradually reaching production and extension M & An appears, and the company's growth is expected to enter a new stage: the company will be listed at the beginning of 18, and the fund-raising projects will be the distribution production line, R & D center and brand marketing construction. With the gradual production of the company's fund-raising projects, the strength in both products and marketing will be further enhanced. The company completed the acquisition of 65% of Chongqing Yuantong's equity in May 19. Chongqing Yuantong's main business is low-voltage complete sets of equipment and transformers, and its main customers are Chongqing national network enterprises, which are highly complementary with the company in products and clients. We expect that with the gradual production of fund-raising projects to enhance the competitiveness of the company and the synergy of the acquisition of Chongqing Yuantong, the company's performance growth is expected to reach a new level.

Investment suggestion: the company is one of the leading companies in the high-end market of low-voltage electrical appliances in China, and the dual power supply products have a strong premium ability by virtue of the industry-leading technical strength. The company has technologically leading products and a more mature project-based sales team, and has many successful cases in project-based markets such as rail transit, data centers, large venues and industrial plants, which is evidence of the company's past competitiveness. it is also the basis for the company to improve its penetration in the middle and high-end markets in the future. We expect that with the enhancement of the strength of the company's fund-raising projects on both products and marketing, as well as the gradual appearance of the synergy of epitaxial mergers and acquisitions, the company is expected to enter a new stage of growth. We expect the company's EPS for 19-20-21 to be 0.49, 0.69, and 0.92 yuan respectively, corresponding to a closing price of 40.8, 29.0, and 21.8 on December 31, respectively. For the first time, we give a "recommended" rating.

Risk tips: 1) if the progress of domestic brands in product technology and marketing is not as expected, they may not be able to compete with foreign investors in the high-end market. 2) if the real estate is completed or the 5G construction does not meet expectations, it will affect the growth of the overall market scale of low-voltage electrical appliances. 3) if the prices of copper, steel, silver and other raw materials rise sharply, it will affect the gross profit margin of low-voltage electrical appliance manufacturers.

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