2019 and 1Q20 results fell short of our expectations
The company announced its 2019 results: revenue of 38.057 billion yuan, a year-on-year decrease of 15.02%; Guimu's net profit was 501 million yuan, a year-on-year decrease of 23.88%. 1Q20's single-quarter revenue was 4,523 million yuan, a year-on-year decrease of 25.67%; Guimu's net profit was 101 million yuan, a year-on-year decrease of 80.77%.
The lower-than-expected performance was mainly due to: 1) the industry situation is sluggish, demand in the global new shipbuilding market is still at a cyclical bottom. In 2019, the country accepted orders for new ships of 29.07 million DWT, a year-on-year decrease of 20.7%; 2) 1Q20, due to the dual impact of the epidemic and the uneven distribution of revenue confirmation nodes for shipbuilding products, the company's shipbuilding completion volume declined year-on-year.
By sector: 1) Marine defense and marine development equipment: In 2019 (same below), revenue was achieved of 15.494 billion yuan, a slight decrease of 2.62%, and the gross profit margin was 8.89%, an increase of 7.25ppt over the previous year, mainly due to changes in product structure. 2) Marine transportation equipment: Achieved revenue of 7.751 billion yuan, a year-on-year decrease of 29.83%, gross margin of -1.65%, a year-on-year decrease of 16.95ppt.
Mainly due to the decline in shipbuilding completion volume, the scale effect declined, and the cost of some raw materials and labor increased. 3) Deep-sea equipment and ship repair and modification: Achieved revenue of 2,445 million yuan, a year-on-year decrease of 61.45%, gross margin of 16.86%, an increase of 2.19ppt over the previous year. 4) Ship support and mechanical and electrical equipment: Achieved revenue of 7.313 billion yuan, up 3.06% year on year, gross margin was 12.15%, up 2.88ppt year on year. 5) Strategic emerging industries: Achieved revenue of 4.461 billion yuan, a year-on-year increase of 19.87%, gross margin of 19.16%, a year-on-year decrease of 0.49ppt.
This is mainly due to increased revenue in new energy equipment such as wind power, nuclear energy, photothermal energy, etc., and strategic emerging fields such as energy saving and environmental protection. Looking at subsidiary companies, Dachuan Heavy Industries achieved net profit of 1.5 billion yuan in 2019, an increase of 48% over the previous year; Wuchuan Heavy Industries achieved net profit of -1.47 billion yuan.
Development trends
Accelerate the development of marine defense equipment and actively promote the upgrading of the civilian ship industry. In 2019, China's first domestically produced aircraft carrier “Shandong Ship” constructed by Dachuan Heavy Industries was successfully delivered to the list, and maritime defense equipment progressed steadily. Looking ahead, China's shipbuilding industry began strategic restructuring in 2019 1. We are optimistic about the company's potential to participate in shipbuilding industry restructuring in the future, as well as strategic opportunities for marine defense equipment and shipbuilding industry upgrading.
Profit forecasting and valuation
Considering that the short-term industry may still be at a low point, we adjusted our revenue and other forecasts, lowered our 2020 net profit forecast by 65.3% to 551 million yuan, and introduced the 2021 net profit forecast of 636 million yuan. The current stock price corresponds to 1.1x 2020 P/B, maintaining outperforming industry ratings. Considering the valuation correction in the shipping sector, the company was given 1.5x P/B for 2020, corresponding target price of 5.46 yuan (23% reduction), a potential increase of 31%.
risks
Product orders and delivery are uncertain; the shipbuilding industry's recovery falls short of expectations.