I. Overview of events
Recently, the company disclosed its annual report in 2019 that its annual revenue was 990 million yuan, an increase of 44% over the same period last year, and its net profit was 190 million yuan, an increase of 96% over the same period last year. The profit in the first quarter is expected to be 19.07 million to 21.19 million yuan, down slightly from the same period last year.
II. Analysis and judgment
Smart water meter expands quickly, and the policy dividend is expected to continue.
The company's rapid profit growth mainly benefits from the rapid expansion of smart water meters. The sales revenue of smart meters for the whole year was + 91% compared with the same period last year, which mainly benefited from the rapid progress of water meter replacement in Tianjin. The company announced in August that the total number of Tianjin NB tables won the bid exceeded 1.05 million, accounting for more than 50% of the total purchase volume. The NB meter has a higher gross margin (43% vs 27%) than the traditional mechanical meter, and can solve the pain points of manual meter reading and high leakage rate of the Water Division. At the same time, it will lay a solid foundation for the subsequent establishment of big data platform and service upgrade of the Water Department. In the past 19 years, the company's NB table has been supplied in large quantities in Beijing, Shenzhen and some provincial capitals, which has completed a major transformation of the customer base from small and medium-sized customers to large customers. With the gradual improvement of the recognition of NB in pilot cities, more industry policies are expected to be introduced in the future, and the company's demonstration effect and first-mover advantage in the field of Internet of things water meters are expected to be further reflected.
Profitability continues to improve, research and development and channels constitute the core barrier the company's overall gross profit margin is 37.6%, and the net profit margin is 20.3%, up 3.7% and 5.4% respectively over the same period last year. The proportion of revenue from smart water meters with high gross margin has increased from 46% to 61%, which has become the main reason for the improvement of the company's profitability. In addition, the scale effect has led to a 1.2% reduction in the rate of management expenses, further raising the net interest rate. The company insists on technological innovation and invests + 35% in R & D compared with the same period last year, continuously improving the research and development of NB table technology. At present, the company's business has spread to 31 provinces, municipalities and autonomous regions across the country, and the customer coverage of the Water Department has reached 40%. Compared with traditional mechanical watches, customers' demand for after-sales service of NB watches is significantly increased, and the company's channel advantages are expected to be further reflected in the future.
The impact of the epidemic is limited. It is optimistic that the sustained growth of the company's profits under the wave of new infrastructure is affected by COVID-19 's epidemic situation, and the time for resuming work and production downstream of the company is delayed, resulting in a slight decline in performance in the first quarter, while the company's Q1 profit still grew slightly after deducting the impact of donation expenses. The demand for intelligent construction of domestic cities is urgent, and the demand for the company's products is expected to continue to improve. At present, the permeability of domestic smart water meters is only 2030%. Compared with the permeability of 80% of smart gas meters and electricity meters, there is much room for improvement, so we are optimistic about the growth attribute of the company.
III. Investment suggestions
As the fastest application scenario for 5G technology, the company's NB sales are expected to continue to expand. It is expected that the EPS will be 0.24max 0.29x0.38 in 2020-2022, corresponding to the current stock price PE 22max 18max 14x, which is lower than the instrument industry's average forecast PE of 24x in 2020. We are optimistic about the rigidity and growth of the company's product demand, covering it for the first time and giving it a "recommended" rating.
Fourth, risk tips:
1, the promotion policy of intelligent water meter is not as expected; 2, the competition in the industry is intensified.