1H20 performance is in line with our expectations
The company announced 1H20 results: revenue / homed net profit decreased by 22.6% to 542.0.25 billion yuan compared with the same period last year, while non-homed net profit decreased by 79.6% to 5.71 million yuan compared with the same period last year, which is in line with our expectations (see our July 17 report "1H20 Machinery Industry performance Preview: significant month-on-month improvement, structural differentiation"). In a single quarter, 2Q20 revenue / return net profit fell 5.0% year-on-year / rose 107.2% to 347 million yuan, up 77.3% from a month earlier to 294.6%.
Changes in product structure led to a small increase in comprehensive gross profit margin. The revenue of 1H20 vehicle electrical equipment / ground electrical equipment / information and safety inspection decreased by 19.2%, 10.0%, 63.9% to 2.92 million yuan, and the gross profit margin was from-0.6/+5.0/-8.4ppt to 24.8%, 45.5%, 34.6%. Due to the increase in gross margin and share of ground electrical equipment, the company's comprehensive gross profit margin rose slightly to 33.6% year-on-year by 0.3ppt.
The expense rate rose slightly and the net profit margin was flat compared with the same period last year. Affected by the decline in revenue in the first quarter, the 1H20 sales / management / R & D / financial expense rate rose 3.9 / decreased 3.0ppt over the same period last year compared with the same period last year. Affected by changes in the fair value of financial assets, the net profit margin of 1H20/2Q20 was flat year-on-year / increased by 8.0ppt to 4.6% and 14.7%. The net operating cash outflow of 1H20 was 36.77 million yuan, which was 15.41 million yuan less than the same period last year.
Trend of development
1H20 orders have declined compared with the same period last year, and urban rail accounts for a higher proportion of orders. By the end of the 1H20 period, the company had orders on hand of 1.993 billion yuan, down 8% from the same period last year, of which urban rail orders accounted for more than 80%. At present, the company has established an obvious competitive advantage in the urban rail market, and the share of vehicle air conditioning / signal power supply system in the urban rail market is about 30% and 85% respectively. We expect that the new urban rail mileage in China is expected to exceed 1600 km in 2021, and the scale of the urban rail equipment industry is expected to maintain double-digit growth. With the resumption of urban rail bidding and the acceleration of construction progress, we expect that the urban rail business is expected to contribute to the increase in the next two years.
Phased progress has been made in strategic cooperation with Guangzhou Metro. On January 31, 2019, the company signed strategic cooperation agreements with Guangzhou Metro and Guangzhou Rail Transit Industry Fund to jointly promote technological innovation and market transformation. In August 2020, the cooperative project "220KVA+30KW Metro Train medium / High Frequency Converter Auxiliary Power supply" passed the review of the project review meeting, and the industrialization development made phased progress. We expect that strategic cooperation with local state-owned assets is expected to help the company open up regional markets and speed up the process of technological innovation and marketization.
Profit forecast and valuation
We keep our 2020Universe profit forecast unchanged for 2021. The company's current share price corresponds to 46.4 times 2021's Pmax E. Considering the valuation switch, based on the 45x Pamp E in 2021, we raised the target price by 18% to 6.95, with 3% downside room to maintain a neutral rating.
Risk.
The lower-than-expected profit of the subsidiary leads to the impairment of goodwill.
