Performance summary: the company issued the annual report in 2019 and the quarterly report in 2020. In 2019, the revenue was 6.12 billion yuan (+ 12.1%), the net profit was 430 million yuan (+ 218.2%), and the non-net profit was 390 million yuan (+ 630.3%). The net profit of the annual report is slightly higher than expected. The company's 2020Q1 realized revenue of 1.09 billion yuan (- 4.2%), net profit of 40.13 million yuan (- 68.7%), and non-net profit of 18.3 million yuan (- 80.4%). Q1 performance was basically in line with expectations.
Downstream demand picked up, investment income increased, and high performance growth in 2019. According to the National Bureau of Statistics, in 2019, the elevator, escalator and lift industry produced 1.173 million units (+ 12.8%), and the downstream demand was good. The company's revenue from elevators and elevator parts was 1.58 billion yuan (+ 0.6%) and 2.82 billion yuan (+ 15.8%) respectively, with a gross profit margin of 19.2% (+ 3.5pp) and 10% (- 1.5pp) respectively. The decline in gross margin on elevator parts drove the company's overall gross margin down to 14.1% (- 0.5pp) in 2019. The company's expense rate during 2019 was 12.6% (- 0.7pp), of which the sales expense rate was 2.8% (- 0.2pp), the management expense rate was 10.1% (- 0.6pp, in which the R & D expense rate decreased from 0.3pp to 3.4%), and the financial expense rate was-0.3% (+ 0.2pp). The steady growth in revenue and the high increase in net profit of the parent company are due to the fact that the net profit of Hitachi Elevator China (30% shareholding) increased by 41.2% to 1.85 billion yuan in 2019, leading to a substantial increase in the company's investment income, as well as asset impairment losses of up to 250 million yuan in 2018 and less than 100 million yuan in 2019.
2020Q1 is negatively affected by the epidemic, and its performance is under short-term pressure. Affected by the epidemic, the start of downstream real estate has been delayed, and the elevator industry has been negatively affected. According to the National Bureau of Statistics, 2020Q1 elevator, escalator and elevator production of 149000 units (- 20.7%), a sharp decline. Due to the negative impact of the industry, the company's 2020Q1 revenue fell 4.2 per cent to 1.09 billion yuan, outperforming the industry average. The company's Q1 overall gross profit margin is 12.1% (- 0.1pp), the period expense rate is 12.9% (- 0.6pp), of which, the sales expense rate is 3.3% (+ 0.4pp), the management expense rate is 10.1% (- 1pp, in which the R & D expense rate is reduced from 0.7pp to 3%), and the financial expense rate is-0.6% (- 0.03pp). The large decline in the company's Q1 homing net profit is mainly due to the negative impact of the industry on the investment income of the participating subsidiary Hitachi Elevator China (holding 30%). The net investment income of Q1 company is only 29.11 million yuan, a decrease of 83.8 million yuan compared with the same period last year.
Profit forecast and investment advice. It is estimated that from 2020 to 2022, the EPS of the company will be 0.51, 0.58, 0.71 yuan, respectively, and the corresponding PE valuation will be 14-12-10, maintaining the "hold" rating.
Risk tips: elevator demand or lower-than-expected risk, profitability or lower-than-expected risk, investment return or lower-than-expected risk.