2019 Results Exceed Our Expectations
The company's revenue in 2019 was 406.1 billion yuan, an increase of 17.5%, of which revenue from the lead-acid battery business was 28.22 billion yuan, a decrease of 1.8%. The net profit of Guimo was 1,682 million yuan, an increase of 34.3% over the same period. Benefiting from falling lead prices, the gross margin of the company's battery business increased 2.7ppt to 15.39% year-on-year in 2019, driving the business beyond expectations.
Development trends
The decline in lead prices, the restoration of lead-acid battery gross margin, and the steady increase in shipment volume led to a high increase in performance.
In 2019, the price of non-ferrous lead in the Yangtze River fell 12.7% year-on-year to 16,700 yuan, and the cost and terminal price of lead-acid batteries decreased. Benefiting from the relatively stable profit of individual batteries, the gross margin of the battery business increased to 15.4%. The company shipped 268 million lead-acid batteries in 2019, an increase of 11% over the previous year. As a result, the company's lead-acid battery business revenue declined slightly, but profits recovered markedly.
Channels have been improved, and operating efficiency continues to improve. The company has deployed more than 3,000 win-win companies and 400,000 terminal sales channels across the country, forming a sales network with strong control and high responsiveness.
The number of days the company's bills receivable and accounts turnover declined further in 2019, and expenses for the period fell 0.34ppt to 4.47% year over year. We believe that the company has channel advantages and management advantages to continuously increase market share in the aftermarket market.
The market space for electric bicycles is stable, and the competitiveness of the company's industry is steadily increasing. In 2018, China's electric bicycle production increased 6% and 1-11M19 increased 11%, driving a steady increase in ownership, reaching about 290 million units by the end of 2019. As a result, the lead-acid front panel market has been growing steadily, and the rear assembly market space is stable. The decline in lead prices is also driving the price of lead-acid batteries down. We believe that the installed ratio of lead-acid batteries in the front-end market remains stable, and the impact of lithium batteries will be limited in the short term. The company's shipments increased 11% in 2019, higher than the increase in total demand for batteries, and competitiveness increased steadily. Looking back, we believe that the short-term lead price dividend will be maintained, that the lead-acid battery business can maintain growth, and that we will pay attention to the company's spin-off progress and lithium battery layout in the medium to long term.
Profit forecasting and valuation
Considering the low lead price dividend, we raised our 2020 net profit forecast by 16% to 1.87 billion yuan. Introduce a net profit forecast of 2.07 billion yuan in 2020e. Under the influence of the pandemic, the industry's valuation center declined, maintaining the target price of HK$8. The current stock price and target price correspond to 2020/2021e 2.9/2.6xp/E and 4.2/3.7x P/E respectively. There is room for 44.1% upward, maintaining outperforming industry ratings.
risks
E-bike production fell short of expectations, and lead prices rose rapidly.