1H20 performance is in line with our expectations
Gao Xinxing announced its results: 1H20's revenue was 939 million yuan, down 41.82% from the same period last year, and its net profit was-57 million yuan, down 130.71% from the same period last year. Of this total, 2Q20's revenue was 558 million yuan, down 7.52% from the same period last year, but up 46.51% from the previous quarter. Single-quarter revenue increased for the first time after several consecutive quarters of declines, with a net profit of 2 million yuan. The net profit of a single quarter turned to profit for the first time after three consecutive quarters of losses, and the cash flow of the company's 2Q20 operating activities was also better than that of the previous period and the same period last year. The performance is in line with our expectations.
The sharp decline in revenue in the first half of the year is mainly affected by the epidemic situation of COVID-19 at home and abroad, and the company's production, sales and customer delivery are not as expected. However, we have also observed signs of improvement in the company's 2Q20 revenue and cash flow of operating activities, and we suggest that investors continue to strengthen the development of the company in the areas of vehicle networking and law enforcement standardization.
Trend of development
From the perspective of business: 1) the revenue of Internet of things connection and terminal / application 1H20 was 428 million yuan, down 51.10% from the same period last year, of which the revenue from car networking products was 94 million yuan, down 69.74% from the same period last year. 2) revenue from police terminals and police information applications 1H20 was 91 million yuan, up 36.55% from the same period last year. 3) revenue from software systems and solutions 1H20 was 420 million yuan, down 37.52% from the same period last year. The counter-trend growth of the company's policing business is mainly due to the promotion of 1H20 law enforcement products under the Shandong / Guangzhou / Shanghai and other multi-ground lines and the completion of Hunan / Min / Yunnan / Tianjin and other provincial and municipal platforms. As the company is laying out product research and development, as revenue declines, company rates are on the rise: the rate of R & D expenses has risen to 17.55%. As the company's operating profit is negative, adjusted for deferred income tax, the company's 1H20 net interest rate is-6.69%.
In terms of vehicle networking: Jiangsu, Zhejiang, Zhengzhou and other provinces and cities have issued new infrastructure plus transportation construction plans one after another, and local governments have accelerated the construction of intelligent transportation. 1H20 company: 1) product side, completed LTE-V2X RSU, integrated reader series, handheld reader series and other new product research and development, 5G module GM800 through a number of tests to meet the domestic listing needs; 2) project side, actively promote Hunan / Guangdong / Hebei / Yunnan / Qiong / Hei and other automotive electronic logo project and sample site construction, won the exclusive bid Changsha / Cangzhou / Tianjin PICC and other automotive electronic identification project.
Standardization of law enforcement: the company's case center will continue to be promoted throughout Guangdong Province in 2020. At present, it has successfully established model sites in Hubei, Guangxi, Min, Liao, Hebei, Jiang, Mongolia, Shaanxi and other identities, laying a good foundation for market expansion in 2020 and beyond.
Subsidiaries: in the company's main subsidiaries, except for Gao Xinxing Gomai Technology 1H20, which is engaged in smart terminal business, the net profit of Gao Xinxing Gomai Technology is positive, the rest of 1H20 is still at a loss. Whether the company's previous extension development strategy has a synergistic effect remains to be evaluated.
Profit forecast and valuation
We keep the revenue of Gao Xinxing 2020E/2021E 2535,2777 million yuan unchanged, the corresponding net profit of 0.68 million million yuan unchanged, the neutral rating unchanged, and the target price 5.40 yuan unchanged. The company's current stock price corresponds to 2020E/2021E 's market-to-sales ratio 4.3x/3.9x, and the target price corresponds to 2020E/2021E 's market-to-sales ratio 3.7x/3.4x, with a downward possibility of 12.90%.
Risk
Goodwill impairment risk; revenue falls short of expectations.