1H20 performance is in line with our expectations
The company announced 1H20 results: revenue / return net profit decreased 9.7% year-on-year / increased 85.8% to 1.642 billion yuan (excluding Longxin Technology, 7.7% year-on-year decline / 11.7% growth), in line with our expectations. In a single quarter, 2Q20 revenue / homing net profit decreased by 19.1% / increased by 94.0% compared with the same period last year.
The main industry of the track has increased steadily, the level of gross profit margin has improved, and orders on hand remain high.
1H20's revenue from the main track business increased by 4.3% to 1.47 billion yuan over the same period last year. By the end of the 1H20 period, on-hand orders for rail delivery increased by 11.6% year-on-year to 4.45 billion yuan. Constrained by weak demand downstream, revenue from the new energy sector fell 78.8 per cent year-on-year to 41 million yuan. Benefiting from the increase in gross profit margin of the main business of rail transit, 1H20/2Q20 's comprehensive gross profit margin increased by 4.9/5.8ppt to 35.5% and 37.9% compared with the same period last year.
The net profit margin has improved, and the inflow of operating cash has become positive. 1H20 sales / management / R & D / financial expense rate compared with the same period last year + 0.3 pm "0.6 mark" 0.9 ppt 1.6/2.5ppt increase in expense rate during the period 1H20Universe 2Q20. 1H20's net profit margin increased to 15.3% year-on-year (excluding Longxin Technology to improve 2.7ppt year-on-year). 2Q20 has a net operating cash inflow of 115 million yuan, while 1Q20/2Q19 has a net outflow of 308 million yuan.
Trend of development
The company is expected to benefit from the good growth prospects of the urban rail industry. In the medium term, we expect that the number of urban rail vehicles delivered in 2020 is still expected to exceed 9000, and the new urban rail mileage in 2020 and 2021 is expected to exceed 1400 × 1600km respectively. In addition, we expect that the new operating mileage of urban rail and the number of vehicle bids will remain high during the 14th five-year Plan period, and the company is expected to significantly benefit from the dividend growth of urban rail "new infrastructure".
New energy business is expected to contribute important increments in the long term. In October 2019, the company divested 100% of Longxin Technology and refocused on rail transit and new energy businesses. The company's new energy car connectors enter SAIC, Geely, BYD and other high-quality customers. 1H20 due to the downturn in the industry, the sector's revenue fell 78.8% year-on-year to 41 million yuan. In July, production and sales of new energy vehicles rose 54% and 48% compared with the same month last year. With the industry bottoming out and recovery, we expect the new energy business 2H20 to return to growth.
Profit forecast and valuation
Due to the good cost control, we raised the 2020 EPS forecast of 7.1% to 0.48 for 2021. The company's current share price corresponds to 12.5 times 2020 pound 14.6 pound in 2021.
Considering the increase in earnings and the switch in valuation, based on the 15x Pamp E in 2021, we raised the target price by 7% to 8.38 yuan, with 20% upside space, and maintained a neutral rating.
Risk
The recovery in the lower reaches of the industry was less than expected.