Main points of investment:
Maintain cautious increase rating: in the first half of the year, the company continued to promote the adjustment and optimization of business structure, and Q2 revenue and profit declined. Considering the impact of the epidemic on the company's civilian and military products sales business, the EPS for 2020-2022 was lowered to 0.01yuan (- 0.05a) / 0.010.06yuan (- 0.06yuan). With reference to comparable peers, the company was given 0.98 times PB in 2021, and the target price was lowered to 4.00yuan.
The adjustment of business structure has led to a decline in revenue and profits, and revenue is expected to stabilize after the adjustment. The company's 2020H1 achieved revenue of 7.164 billion yuan, down 28.88% from the same period last year, due to the company's initiative to adjust its business structure and reduce the scale of its low gross profit margin business; the net profit was 10.51 million yuan, down 42.24% from the same period last year, and the performance was in line with expectations. The company is in the stage of business adjustment. In the first half of the year, the company significantly reduced the scale of its low gross margin trade business. Trade and other business income fell by 59.80% to 179 million yuan. Professional footwear / textile printing and dyeing / protective equipment business income declined relatively small compared with the same period last year. 30.63%, 19.16%, 28.55%, respectively, the decline is relatively small. In the future, the company will focus on the main business of military and civilian products. After the completion of the business adjustment, the future revenue is expected to pick up steadily.
The company reduces the low gross margin business and increases the gross profit margin, and the expense rate is stable and controllable. The company continued to promote product restructuring and reduce the scale of trading business with low gross profit margin, and 2020H1 increased its gross profit margin by 3.32pct to 11.81%. The rate of sales expenses and management expenses increased slightly by 0.25pct and 1.36pct to 2.67% and 5.47% respectively, which is relatively stable and controllable.
The company's production of military and civilian products is expected to stabilize in the future, and epidemic prevention materials are expected to become a new growth point of the company. During the epidemic in the first half of the year, the company urgently switched to medical protective clothing to supply domestic and foreign markets, which is expected to become a new growth point of the company, and its performance is expected to stabilize after the completion of the structural adjustment of military and civilian products.
Risk hint: the economic recovery is slowing and the business structure adjustment is not as expected.
