1H20's performance is better than we expected.
The company announced 1H20 results: operating revenue of 20.198 billion yuan, an increase of 11.10% over the same period last year.
The return net profit is 740 million yuan, corresponding to 0.12 yuan per share, an increase of 16% over the same period last year. The company's performance is in line with our expectations. The company's 1H20 gross profit margin is 20.1%, which is basically stable. In the case of the decline in the performance of 1Q20 subsidiary AVIC Optoelectronics and China Direct shares, 2Q20 accelerated the resumption of production to achieve double-digit growth in 1H20 revenue and profits.
Aviation complete aircraft business leads the growth. 1) the company's 1H20 aircraft business income was 7.742 billion yuan, an increase of 21.92% over the same period last year, mainly due to the increase in sales of helicopters (Zhongzhi shares) and advanced trainers (Hongdu Airlines). Revenue from aviation aircraft accounted for 38.33%, up 2.97 ppt from the same period last year. 2) 1H20 revenue from aviation parts sector was 10.009 billion yuan, up 7.2% from the same period last year, accounting for 49.55% of the company's total revenue. 3) revenue from aviation engineering services sector was 2.447 billion yuan, down 1.81% from the same period last year. Overall, helicopter and advanced trainer aircraft and other complete machine business growth is relatively rapid, driving the company's growth rate.
During this period, the cost is reduced, and the funds on hand are sufficient. 1) 1H20's sales and distribution expenses totaled 227 million yuan, a decrease of 21.45% compared with the same period last year, mainly due to the reduction of travel, labor and service fees affected by the epidemic. 2) the administrative expenditure was 2.012 billion yuan, down 4.78% from the same period last year, mainly because Hongdu Airlines, a subsidiary, completed the asset replacement and disposal loss subsidiary in the second half of 2019; 3) the financial expenditure was 106 million yuan, down 48.29% from the same period last year. This is mainly due to the decrease in interest expenses in the current period after the company repaid bank loans and redeemed convertible bonds.
With the reduction of expenses during the period, the company's profit growth rate is higher than that of revenue growth. 4) as of 1H20, the company has 12.04 billion yuan in cash and has a strong ability to resist market risks.
Trend of development
The company is the only aviation industry target in Hong Kong stocks, and the prosperity of the industry continues to improve. The company lays out helicopters, trainers, aviation parts and aviation engineering services, and has completed aviation industry chain assets. 1) the demand for helicopters and advanced trainers is strong, and the growth potential is great, which can also be verified from the performance of 1H20 and Hongdu Aviation; 2) the R & D and industrialization capability of the company's aviation spare parts business in the field of 5G and new energy vehicles is enhanced, and the long March 5B rocket is supported. 3) the company plans to complete the acquisition of Tianjin Zhongzhi Co., Ltd. within this year, promote the helicopter business integration, and promote the business integration after the replacement of Hongdu aviation assets.
Profit forecast and valuation
We maintain that the company's 2020amp 21E homing net profit is 1.598 billion yuan and 1.89 billion yuan respectively, and the current share price corresponds to 17.2 times / 14.6 times 2020max 2021 price-to-earnings ratio. The vertical comparison valuation position is on the low side, and there is more room for supplementary growth compared with the A-share industry valuation.
Due to the rising valuation hub of the industry, the company's performance growth is better than expected, and if the company completes the helicopter asset acquisition, it will further consolidate the main business, and the discount rate of Hong Kong stock valuation is expected to increase. We raise the company's target price by 65% to HK $7.03, corresponding to 24 times / 20 times 2020 2020 p / e, 42% upside compared with the current stock price, and maintain the "outperform industry" rating.
Risk
Systemic risk in the market, uncertainty in order delivery and production, lower-than-expected progress in asset acquisition, etc.