Main points of investment:
The company's performance grew steadily, and Hitachi elevator profits increased significantly; in 2019, the company achieved operating income of 6.122 billion yuan, an increase of 12.1% over the same period last year; and a net profit of 427 million yuan, a substantial increase of 218.2% over the same period last year. The net profit of deduction of Guangri shares in 2019 was 391 million yuan, of which the investment income brought by Hitachi elevator to the company was as high as 386 million yuan, accounting for 98.7% of the net profit. In the past five years, the revenue scale of Hitachi elevator has not changed much, basically stable at about 19 billion yuan. Hitachi Elevator's profit improved significantly in 2019, with a net profit of 1.851 billion yuan for the whole year, a sharp increase of 41.2% over the same period last year, while the company's net interest rate rebounded to 9.5%. From a horizontal point of view, the net profit and net interest rate of Hitachi Elevator in 2019 surpassed that of Mitsubishi Elevator.
The demand for real estate completion is about to break out, and the old reform + rail transit has opened up a new space for growth: the scissors gap for housing construction has narrowed since the second half of 2019, and the growth rate of elevator production has also rebounded rapidly in the first half of the year when the inflection point appeared. The rebound in the area of real estate completion has an obvious pull on the elevator industry. The area of housing completed in 2020 is expected to continue to improve, driving the elevator industry to continue to develop. The old retrofit elevator demand and rail escalator demand have also opened up a new growth space for the industry. In terms of old renovation, Hitachi elevators have been installed in more than 7300 old houses across the country, and Hitachi provides elevator services for more than 65% of the old buildings in Guangzhou. In the field of rail transit, Guangri Elevator and Hitachi Elevator won the track escalator project of 3.32 billion yuan and 3.71 billion yuan respectively from 2018 to the first half of 2020, forming a strong support for the company's future profits.
China's huge elevator stock gives birth to a broad post-market space, and the number of elevators in China reached 7.098 million in 2019. At present, the development of China's elevator market has entered a relatively mature stage, the industry will enter the post-market era, the replacement of old elevators and elevator maintenance will become the main driving force for the development of the industry. As for the replacement of old ladders, it is estimated that the demand for replacement of old ladders will reach 511000 in 2030 and 20.8 per cent of CAGR in 2020-2030. In terms of elevator maintenance, according to our estimates, the scale of the elevator maintenance market in 2019 is about 34 billion yuan, and 70% of the elevator maintenance market is occupied by third parties. With the gradual standardization of the industry, the uncompetitive small maintenance providers will gradually withdraw from the market, and the increase in maintenance fees will also make the cake of the industry bigger. The maintenance services of Guangri shares and Hitachi elevators are expected to enter the track of rapid growth.
Profit forecast and investment advice: we estimate that the company's net profit in 2020, 2021 and 2022 will be 4.9,5.5 and 650 million yuan respectively, and the corresponding EPS will be 0.57,0.64,0.76 yuan respectively.
Risk factors: real estate and rail transit investment is less than expected risk, industry competition intensifies risk, raw material price fluctuation risk, investment return is less than expected risk and so on.