1H20's performance is better than we expected.
The company announced 1H20 results: revenue / return net profit 338 million yuan, down 1.4% / up 36.2% year-on-year, deducting non-return net profit up 22.8% to 6700 yuan.
The growth rate of net profit exceeded our expectations, mainly due to the transfer of TECO environmental equity, with a total fair value change income of 11.29 million yuan in the second quarter. In a single quarter, 2Q20 achieved revenue of 243 million yuan, a year-on-year / month-on-month increase of 22.9% / 153.6%, a net profit of 59 million yuan, an increase of 58.1% / 184.0%, and a significant improvement over the same period last year.
The proportion of smart meter business continues to rise, leading to an improvement in the comprehensive gross profit margin compared with the same period last year. 1H20 instrument revenue fell 4.4% year-on-year to 307 million yuan, of which smart meter / mechanical meter revenue was + 2.5% Universe 12.9% to 1.82 million yuan. 1H20 smart meter / mechanical watch gross margin year-on-year-2.0/+0.2ppt to 43.4% Rab 25.2%, but thanks to structural optimization, the company's comprehensive gross margin rose slightly 0.6ppt to 36.8% year-on-year.
During this period, the cost control is good, and the net profit margin is significantly improved. 1H20 sales / management / R & D / financial expense rate compared with the same period last year-0.5 0.7/3.1ppt total decrease during the period of 0.5 ppt, 1H20 and 2Q20 compared with the same period last year. Benefiting from proper cost control, 1H20/2Q20 's net profit margin increased by 6.5/5.4ppt to 23.5% and 24.2% compared with the same period last year. The net operating cash outflow of 1H20 Company was 49.89 million yuan, which was 10.11 million yuan more than that of the same period last year.
Trend of development
We will speed up the transformation of intelligent water services and expand the layout of regional markets. In order to accelerate the implementation of the strategy of "Smart Water + Water big data Service", the company set up Sanchuan Intelligent Water Research Institute (Hangzhou) in the second quarter. In order to further focus on the main business, the company transferred 9.19 million shares of TECO Environment at a cost of 31.44 million yuan in June. By the end of the 1H20 period, the transfer of 5.76 million shares had been completed. In the second quarter, the company has successively set up joint ventures in Kunming, Yunnan and Nanning, Guangxi (51% of which are owned by the company), increasing its efforts to open up the southwest market. In April / July, the company won the bid for intelligent water meter procurement project of Daqing Petroleum Administration Bureau (65.6 million yuan) and Shanghai Urban Water Investment NB-IoT meter procurement project (136500), and the smart meter market was further expanded.
Profit forecast and valuation
We keep our company's 2020 EPS forecast for 21 years unchanged.
The current share price corresponds to a 21-year price-to-earnings ratio of 24.5 times / 20.5 times 2020 pounds. To maintain the "outperform industry" rating, due to the valuation switch, we raised the company's target price by 21% to 6.56 yuan based on 25x Pamp E in 2021, which is 22% upside from the current share price.
Risk.
The promotion of smart water meters is not as expected.