1H20 performance is in line with our expectations
The company announced 1H20 results: revenue 12.55 billion yuan, year-on-year-29.7%, month-on-month-41.5%; return to the mother net profit of 330 million yuan, corresponding to 0.21 yuan per share, year-on-year-28.6%, month-on-month-32.3%, in line with expectations. The decline in revenue and profits is mainly due to the sharp decline in textile and clothing export trade as a result of the impact of the epidemic.
2Q20 income 6.56 billion yuan, year-on-year-31.6%, month-on-month + 9.2%; return mother net profit 165 million yuan, year-on-year-31.8%, month-on-month + 0.9%. Gross margin rose 1.6ppt to 15 per cent month-on-month.
Trend of development
Electrolyte and other lithium materials business volume fell steadily, the profit center of the industry is expected to stabilize in the second half of the year.
The 1H20 revenue of the company's chemical business was 700 million yuan, down 15.9% from the same period last year. The decline in profits in the company's chemical business is mainly due to poor sales of new energy vehicles and a decline in the price of electrolyte materials in the first half of the year. The price of lithium iron phosphate electrolyte was 30,000 yuan per ton last weekend, down 10.4% from the beginning of the year. With the recovery of sales of new energy vehicles in the second half of the year, the prices of materials such as electrolytes are expected to stabilize.
Textile and clothing export trade business has been seriously affected by the epidemic, accelerating the shift to the integration of the world supply chain. 1H20 revenue from the company's trading business was 11.82 billion yuan, down 30.4% from the same period last year. Mainly due to the weak demand in the international market affected by the epidemic and the trade friction between China and the United States over the past 19 years, some orders have been transferred overseas. In the future, the company will accelerate overseas layout, Myanmar clothing industry base and other projects continue to promote. Overseas outbreaks have recovered in the second half of the year, and we expect trade business to stabilize and pick up.
Ruitai New Energy, a subsidiary, is to be spun off and listed, focusing on the new materials business of lithium electricity. In April, the company issued an announcement to spin off its subsidiary Ruitai New Energy to the growth Enterprise Market, focusing on new chemical materials and new energy business. Ruitai New Energy 1H20, a subsidiary that mainly produces lithium-ion battery electrolytes and silane coupling agents, had revenue of 600 million yuan, down 16.1% from the same period last year, while Chaowei New Materials, a subsidiary that mainly produces electronic chemicals, had revenue of 70 million yuan, up 5.4% from the same period last year.
Profit forecast and valuation
Due to the impact of the epidemic on clothing export business and the transfer of some orders overseas as a result of the trade friction between China and the United States, we have reduced the net profit by 15.7% in 2021 to 806 million yuan / 961 million yuan. The current share price corresponds to a price-to-earnings ratio of 13.1 times 2021 / 11.0 times earnings.
Maintain an outperform industry rating and a target price of 8.00 yuan, corresponding to 15.5 times 2020 price-to-earnings ratio and 13.0 times 2021 price-to-earnings ratio, which has 18.5% upside space compared with the current stock price.
Risk
The overseas epidemic situation has been repeated, and the trade friction between China and the United States has intensified.