Event

The company announced its annual report in 2019, with an annual operating income of 22.116 billion yuan, an increase of 4.16% over the same period last year, and a net profit of 1.08 billion yuan, an increase of-14.9% over the same period last year.

Brief comment

In 2019, the growth rate of the company's elevator sales was lower than the industry level, and lower than expected by the end of 2019. By the end of 2019, the completed housing area nationwide was 959 million square meters, an increase of 2.56% over the same period last year and 10.38 pcts over the same period last year. This is mainly due to the fact that the growth rate of new housing construction area has continued to be higher than that of housing completed area since 2016, the financing environment has tightened and the cost of raw materials has risen. Real estate enterprises generally adopt "rush to start, fast sales, slow construction, late delivery".

High turnover strategy, but as the proportion of short-term housing sales hit an all-time high, real estate companies generally face the pressure of handing over houses, so the growth rate of completed housing area has rebounded since the end of 2018.

Thus driving the demand for elevators, the output of elevators in 2019 was 1.173 million, an increase of 12.8% over the same period last year and an increase of 5.3 pcts over the same period last year. The company's elevator business pays full attention to the maintenance and development of the relationship with strategic key customers. The company sold 88820 elevators in 2019, an increase of 9.99% over the same period last year, the growth rate is slightly lower than the industry growth rate, and the market share remains stable as a whole.

Revenue increased by 4.16%, profitability declined slightly, and the performance was lower than expected to achieve revenue of 22.116 billion yuan in 2019, an increase of 4.16% over the same period last year, of which the income of the elevator business was 21.013 billion yuan, an increase of 4.69% over the same period last year, accounting for 95.01% of the revenue. Printing and packaging business and other income totaled 1.103 billion yuan, an increase of-5.08% over the same period last year, accounting for 4.99% of revenue. In 2019, the gross profit margin of the company's elevator business was 16.39%, down 2.68pcts from the same period last year, mainly due to the high price of raw materials and overcapacity in the industry.

During the period of the company, the expense rate was 8.74%, an increase of 0.24pcts over the same period last year, of which the sales expense rate was 3.24%, a decrease of 0.17pcts over the same period last year, mainly due to a relatively large decline in agency fees and commissions; the management expense rate was 6.53%, an increase in 0.19pcts over the same period last year, mainly due to an increase in labor costs; and the operating profit margin was 8.49%, down 2.59pcts from the same period last year. In 2019, the net profit of returning to the mother was 1.08 billion yuan, an increase of-14.9% over the same period last year and a year-on-year increase of 9.49% of ROE, a decline of 2.25pcts. The net cash flow of operating activities was 173 million yuan, an increase of-8.22% over the same period last year, mainly due to the increase in the purchase amount of raw materials, spare parts and other inventory and the increase in operating receivables such as contract assets. 102.68% of the cash / operating income received from the sale of goods and services.

The company has sufficient orders on hand, judging that the fundamentals will gradually improve. Shanghai Mitsubishi Elevator, the holding subsidiary of the company, has undertaken the company's most important elevator business. According to the 2019 annual report, Shanghai Mitsubishi Elevator realized operating income of 21.013 billion yuan, an increase of 4.69% over the same period last year, accounting for 95.01% of the company's total revenue, of which the income from installation, renovation and maintenance services exceeded 6.5 billion yuan. Accounts for 31% of Mitsubishi Elevator's total revenue, an increase in 1.0pcts compared with the same period last year, and a gradual increase in the proportion of service revenue will enhance the stability and sustainability of the company's revenue. In addition, under the impact of the COVID-19 epidemic, the growth rates of new housing construction area and completed area from January to February 2020 were-44.9% and-22.9% respectively, both of which declined sharply. However, due to the greater rigid pressure on housing delivery and the marginal relaxation of financing conditions after resumption, we expect that the housing completion end of 2020 will continue to improve, and the growth rate of real estate completed area will show a trend of low before and high after. By the end of 2020, the company's elevator product inventory was 52627, roughly the same as the same period last year, equivalent to 59% of 2019 shipments, and sufficient orders on hand. At the same time, with the decline in the cost of raw materials, the company's fundamentals will begin to improve gradually. it is estimated that the company's revenue from 2019 to 2021 will be 22.996 billion yuan and 23.921 billion yuan respectively, and the return net profit will be 1.15 billion yuan and 1.221 billion yuan respectively. The corresponding EPS is 1.12 yuan per share and 1.19 yuan per share, which is given P/E15 times in 2020, with a target price of 16.9 yuan per share, maintaining a "buy" rating.

Risk tips: 1) the prosperity of the industry is lower than expected; 2) the execution of orders is lower than expected.