Event

Deep cold shares released its annual report in 2019 and the first quarter report in 2020: the annual operating income in 2019 was 435 million yuan, an increase of 26.99% over the same period last year; the gross profit was 77 million yuan, down 23% from the same period last year; and the net profit attributed to the parent company was 7 million yuan, up 106.35% from the same period last year. In the first quarter of 2020, the operating income was 32 million yuan, down 49.85% from the same period last year, and the net profit attributed to the parent company was-10 million yuan.

Comment

The performance in 2019 was basically in line with expectations, and it was affected by the control of the epidemic in the first quarter of 2020, and the performance dropped sharply compared with the same period last year.

For the whole of 2019, the company achieved an operating income of 435 million yuan, an increase of 26.99% over the same period last year, a gross profit of 77 million yuan, a decrease of 23% over the same period last year, and a net profit of 7 million yuan belonging to the parent company, up 106.35% from the same period last year.

Compared with the 2018 year-on-year growth rate, it is down 16.12 percent. For the whole year, the comprehensive gross profit margin was 17.85%, down 5.5 percentage points from 2018 and 9.25 percentage points from the fourth quarter of 2019.

In the first quarter of 2020, the operating income was 32 million yuan, down 49.85% from the same period last year, and the net profit attributed to the parent company was-10 million yuan.

The company's performance in 2019 is basically in line with expectations, affected by epidemic control in the first quarter of 2020, and its performance dropped sharply compared with the same period last year. Downstream of the company are all kinds of large-scale energy projects, the first quarter is already off-season, and affected by epidemic control, production and delivery have been delayed. We expect that with the state's efforts to promote the resumption of production and work, the company's operating situation in the second quarter will be significantly improved with the commencement of construction.

The boom cycle inflection point of the oil and gas industry chain is determined, and the LNG process package equipment demand of the company is flexible and timely.

The future development of domestic oil and gas will focus on natural gas. From the perspective of policy and demand, among the domestic oil service equipment and service plate, the fracturing equipment in the upstream development link, the pipe network in the middle reaches and LNG-related equipment have the best prospect. Taking into account the fundamentals of the industry and cycle rhythm, the next 2-3 years, the middle reaches of LNG reception, transport, storage and peak regulation equipment flexibility space is the largest.

The company has fully benefited from the construction of hydrogen energy infrastructure, and the strong certainty of hydrogen energy investment in the LNG process and liquid process will make the company have obvious advantages in the equipment development and technology transfer of hydrogen filling stations, and will fully benefit from the landing of domestic hydrogen energy infrastructure investment. In the future, the acceleration of domestic hydrogen energy development will open a broader application space for the company's core functional equipment such as liquefaction, purification, prying and filling.

Profit forecast

The start of the downstream customers of the company is seriously affected by the epidemic control, and the postponement of the project construction will also affect the delivery and settlement of air separation equipment. We appropriately adjust the profit forecast according to the annual report and the quarterly report. We estimate that from 2020 to 2022, the company will achieve operating income of 5.20,6.23 and 747 million yuan, and net profit belonging to the parent company of 0.34,0.43 and 50 million yuan. The latest total share capital of the company is 125 million shares, corresponding to 0.27,0.34 and 0.40 yuan of EPS. On April 29, 2020, the latest stock price is 12.11 yuan, corresponding to a market capitalization of 1.5 billion yuan. The PE in 2020-2022 is about 44, 35 and 30 times. The company's core LNG equipment business in 2019 is likely to be a cyclical inflection point, return to the economic track in the future, considering the company's layout in the use of hydrogen energy, we maintain the company's "overweight" rating.

Risk hint: LNG equipment demand recovery is lower than expected; hydrogen energy infrastructure construction is lower than expected.