1Q20 performance is in line with our expectations
The company announced 1Q20 results: revenue 493 million yuan, year-on-year-17.9%; return to the mother net profit 40.83 million yuan, year-on-year-27.3%, in line with our expectations.
Trend of development
The gross profit margin declined year on year, the expense rate decreased slightly compared with the same period last year, and the operating cash flow remained positive. The company's gross profit margin in the first quarter was 21.2%, down 2.6ppt from the same period last year. We think it is due to the decline in revenue from the motor business, but cost rigidity such as depreciation and amortization. The company's expense rate in the first quarter was 12.0%, down 0.4ppt from the same period last year, in which the rates of management, sales and research expenses increased, and financial expenses decreased more. The net operating cash flow was 34.66 million yuan, maintaining a positive value.
The automotive motor business is under pressure, and the UAV sector may not contribute profits. Auto parts business accounted for 61% of the company's revenue in 2019. China's auto production fell by 45% in the first quarter of 2020, and the impact on the company's revenue is about 25ppt. While the company's revenue fell by 18% in the first quarter, we expect revenue growth of more than 15% from drones and other parts businesses (wind turbines, electric bicycles, ice presses, etc.), reducing the impact of the decline in the automotive sector.
On the profit side, we estimate that the operating leverage of the company's automotive business is about 3 times in the first quarter, so we expect the business to lose money in the first quarter and have an impact on operating profit of about 75ppt. At the same time, the negative minority equity in the first quarter showed that drone manufacturing sales did not significantly contribute to profits. Therefore, we expect the company's first-quarter operating profit to be mainly contributed by UAV technical service fees and other spare parts business.
The motor pattern is difficult to improve in the short term, and the order situation of drones remains to be observed. We expect the decline in sales of traditional cars and new energy vehicles downstream to put pressure on the company's performance this year, but there are other parts business hedging, the overall profit performance is relatively robust. Looking forward, due to the high degree of homogenization and dispersion, we believe that the motor competition pattern is difficult to improve in the short term, which suppresses the profitability of the company's main business. In terms of drones, the business has low transparency, is greatly affected by orders, and has high profit uncertainty.
Profit forecast and valuation
Taking into account the impact of the epidemic, we reduced our 2020 net profit by 7.8% to 270 million yuan. At the same time, the profit forecast of 2021 is 320 million yuan. The current share price corresponds to a price-to-earnings ratio of 20.5 times 2021 / 17.2 times earnings. Maintain a neutral rating and a target price of 13.00 yuan, corresponding to 19 times 2020 price-to-earnings ratio and 16 times 2021 price-to-earnings ratio, which is 6.2% lower than the current share price.
Risk.
The downstream car market recovered less than expected, and new orders for drones were lower than expected.
