Kangli Elevator released a semi-annual report: the operating income in the first half of the year was 1.765 billion yuan, an increase of 3.60% over the same period last year; the net profit belonging to shareholders of listed companies was 167 million yuan, an increase of 62.38% over the same period last year. At the same time, the company expects a net profit of about 321 million yuan to 401 million yuan in the first three quarters, an increase of 60% 100% over the same period last year. Kangli is a flexible variety that we have always recommended. The profit repair brought by "scale effect + pattern improvement" will continue, and the company's excellent cost control ability will also be highlighted in the first half of the year. 2020 is a bumper harvest year for Kangli. It is estimated that the net profit of Kangli in 20-21 years will be 455 million / 562 million, corresponding to 19 times / 15 times of PE. Continue to strongly recommend!

The gross profit margin of the product has increased steadily, and the alpha attribute has been highlighted. The main reasons why Kangli's income growth rate was not high in the first half of the year, and the net profit growth rate far exceeded the income growth rate, included: (1) the gross profit margin increased significantly, with a gross profit margin of 31.21%, an increase of 2.4pct over the same period last year, mainly because the price of elevator products remained stable, while steel prices declined in the first half of the year compared with the same period last year, which reduced the company's procurement costs and expanded its profit space. The company investigated the supply and demand of raw materials in the market, and timely locked in the purchase prices of some raw materials, which is conducive to the stable increase of gross profit margin. (2) the declining effect of steel prices will also be transmitted to the purchased parts. Under the premise of ensuring the supply quality and timely delivery, the purchasing department of the company group has fully communicated with the suppliers, and the price of the purchased parts has been adjusted to a certain extent. The reduction in the cost of purchased parts has also contributed to the increase of the company's gross profit margin. (3) the company continues to invest in R & D, and with the investment of intelligent production line, the upgrading of intelligent manufacturing plant and the commissioning of test center, the production process is optimized, the production tooling capacity is improved, the product design is improved, the product unit cost is reduced, and the product competitiveness of the company is improved. (4) scale effect + fine management, all staff make concerted efforts to strictly control various costs, the sales expense rate in the first half of the year is 11.29%, and the management expense rate is 7.98%, all of which are lower than the same period last year.

The operating indicators are improving, and the operating quality is steadily improving: (1) the operating net cash flow in the first half of the year is 202 million, returning to the best level since 2015; (2) benefiting from the substantial increase in gross profit margin, the company's net profit rate in the first half of the year is 9.25%, which is significantly higher than that in the same period last year. The net profit rate in the second quarter is 12.65%, and 5pct is significantly higher than the same period last year. (3) contract liabilities / accounts received 1.201 billion, an increase of nearly 30% over the same period last year, proving the fullness of orders; (4) ending inventory of 1.12 billion, year-on-year growth, of which 720 million of issued goods and 120 million of inventory goods, the structure is very healthy.

The execution of orders continues to grow. According to the company's announcement, the valid orders being executed by the company in the past 20 years were 6.343 billion yuan (excluding winning the bid but did not receive a total deposit of 622 million yuan), with an increase of 11.8% compared with the end of the same period last year. The company seized the peak of national key construction and actively participated in market bidding. From January to July, the company won a total of 600 million yuan in the high-speed rail and rail transit market, accounting for 118% of the total bid for high-speed rail and rail transit in 2019. The company's heavy-duty escalator products are increasingly competitive and recognized in the market. With the expansion of the company's business scale, the company is still actively planning the long-term development of maintenance and transformation, maintenance and maintenance business plate, and vigorously open up the paid service market.

Kangli is a flexible variety that we have always recommended. 20 years is a year of bumper harvest for the company. Continue to strongly recommend it! The profit repair brought about by "economies of scale + pattern improvement" will continue. Benefiting from the company's excellent cost management ability (raw materials + expense side) and significant economies of scale, gross profit margin is expected to increase significantly in the first half of the year, and looking forward to the second half of the year, controllable production costs + accelerated infrastructure investment + accelerated industry clearing + real estate stabilization is expected to continue the boom. In addition, the transformation of old residential areas is an important direction to expand domestic demand, and the elevator industry is one of the main beneficiary industries. Opening the growth ceiling is expected to open a new round of industry business cycle, and Kangli is also one of the beneficiaries. 20 years is a bumper harvest year of Kangli, continue to strongly recommend!

Risk hint: steel price fluctuation risk, real estate growth rate is not as expected.