The company achieved a net profit of 93.72 million yuan in the first half of 2020, down 29.59% from the same period last year. During the reporting period, affected by the impact of the epidemic and the accounting caliber adjustment of the drone business, the company's revenue declined slightly and its profitability decreased temporarily. As the car market picks up and drone orders hit the ground, the company's performance is expected to continue to grow throughout the year. Taking into account the company's medium-and long-term development prospects of the drone business, maintain the "buy" rating, the target price of 22 yuan.
The performance affected by the epidemic has suffered a temporary setback and is expected to maintain growth throughout the year. In the first half of 2020, the company realized operating income of 1.176 billion yuan (year-on-year-3.65%) and net profit of 93.72 million yuan (year-on-year-29.59%).
On the revenue side, although during the reporting period, due to the adjustment of accounting caliber, drone revenue increased by 73.4% compared with the same period last year, but affected by the epidemic, auto parts revenue fell by 19.9%, and overall revenue declined slightly. On the profit side, the gross profit margin of cars, ice presses and other businesses decreased by 5.73pcts to 19.88% compared with the same period last year. During the reporting period, due to the reduction of office travel expenses of sales staff, the increase of interest income and the reduction of foreign exchange losses, sales expenses decreased by 17.28%, financial expenses decreased by 208.07%, and the expense rate decreased by 0.87pcts to 10.24% during the reporting period. The company's net interest rate fell 3.93pcts to 8.17% compared with the same period, and its profitability declined temporarily.
However, with the gradual stabilization of the auto market and the gradual landing of drone orders in the second half of the year, the company's auto parts business is expected to pick up, the growth rate of the drone business is expected to increase, and full-year performance is likely to continue to grow.
The increase in forward-looking indicators such as inventory and contract liabilities may indicate the improvement of the company's business. At the end of the reporting period, the contract debt was 17.29 million yuan, a sharp increase of 108% over the same period last year, or showed that the company had sufficient orders on hand; the inventory was 511 million yuan (year-on-year + 36.99%), of which raw materials and products in process totaled 355 million yuan (+ 76.62% year-on-year), or showed that the company was actively preparing goods for production due to the increase in the volume of production tasks; it could be seen that the delivery of the company's products was smooth by issuing goods of 2400 yuan (year-on-year-29.41%). The company's project under construction is + 45.19% higher than at the beginning of the period, which is mainly due to the increase in investment in intelligent factories during the reporting period, indicating that the company is actively expanding production, and the company's business scale is expected to further expand after the increase in production capacity. The business demeanor of the company is good, and the company is actively expanding its production capacity and preparing products. it is expected that with the landing of orders in the future, the performance of the company in the medium and long term may return to steady growth.
The accounting caliber of the drone business will be adjusted and the results in the second half of the year may be accelerated. The company obtained four military industrial certificates in November 2018 and officially has the qualification to accept military orders. Since the second half of 2019, UAV has gradually shifted from technical service fees to UAV system subjects to recognize revenue. During the reporting period, the revenue of the drone business reached 125 million yuan, an increase of 73.4 percent over the same period last year, but the accounting caliber adjustment also led to a decline in gross profit margin of 32.87 million yuan and a decline of 49.34 percent to 26.26 percent and 32.87 million yuan respectively. In August 2019, the company announced that its subsidiary Tianyu Changying signed a new contract of 780 million yuan with a customer, and the contract size increased to 925 million yuan in December. It is expected that with the gradual landing of large orders, the company's UAV business performance is expected to accelerate in the second half of the year. On the other hand, the company obtained the export license of Sky Eagle UAV in September 2018, and actively distributed overseas civilian products market. It is expected that the medium-and long-term civilian product export revenue will provide new impetus for the development of the company's UAV business.
Affected by the epidemic, the international business has declined, and the development trend of the automobile business remains unchanged. The company is mainly engaged in motor parts business and UAV business two major modules, is the world's largest supplier of automotive generator stator core, and began to focus on expanding new energy vehicle business. Affected by the epidemic, in the first half of 2020, the company's domestic sales income was 1.019 billion yuan (year-on-year + 0.5%) and export sales income was 157 million yuan (year-on-year-23.97%). It is optimistic about the long-term development of the company's automobile business as the impact of the epidemic gradually fades and the demand for cars in domestic and foreign markets picks up.
Risk factors: major shareholder stock pledge risk, drone orders do not meet expectations, raw materials rise risk, motor stator and rotor new orders are not as expected, capacity expansion is not as expected.
Investment suggestion: considering the great decline of the company's automobile business under the influence of the epidemic, the company's 2020 EPS forecast for 21 years is reduced to 0.78 Universe 0.94 yuan (the original forecast is 0.83 Universe 1.00 yuan), and the company's 2022 EPS forecast is given to 1.14 yuan.
The current price of the company is 18.16 yuan, corresponding to the PE of 2020-21-22 is twice as much as that of 23-19-16. Taking into account the company's medium-and long-term development prospects of the drone business, maintain the "buy" rating, with a target price of 22 yuan (corresponding to 28 times PE valuation in 2020).
