What happened: Henghua Technology released a report for the third quarter of 2020 that the company's operating income in the third quarter was 271 million yuan, an increase of 25.51% over the same period last year; its net profit was 58.8532 million yuan, an increase of 52.69% over the same period last year; and the net profit after deducting 60.012 million yuan was 60.012 million yuan, an increase of 61.77% over the same period last year.
There was a large amount of rebate for the previous project, and the operating cash flow increased significantly: 20Q3 achieved a revenue of 271 million yuan, an increase of 25.51% over the same period last year; a net profit of 58.8532 million yuan, an increase of 52.69% over the same period last year; and a gross profit margin of 5.41pct over the same period last year. The operating cash flow reached 250 million yuan, an increase of 627.25% over the same period last year, mainly for the recovery of the project contract and the recovery of the project performance bond. According to the company announcement, the rebate of 61.6048 million yuan for the EPC general contract for the design, procurement and construction of urban distribution network construction and reconstruction project in Xingyi City, Qianxinan Prefecture, and 19.9209 million yuan for the first batch of urban power network renovation projects of Xingyi Electric Power Co., Ltd in 2018. The refund of the project "EPC General contract for Design, Purchasing and Construction of Power Transmission and Transformation Project of 10kV and below Urban Distribution Network Construction and Reconstruction Project of Xingyi City in 2019" is 135 million yuan, and the total payback of the three projects is 217 million yuan. Overall, the company achieved revenue of 515 million yuan in the first three quarters, down 21.91% from the same period last year; net profit from its mother was 93.2055 million yuan, down 28.08% from the same period last year; and operating cash flow was 177 million yuan, up 178.11% from the same period last year.
Increase market expansion, increase sales costs, and the proposed share buyback shows confidence: in the third quarter of 2020, the company's expense rate (including R & D) was 21.39%, a decrease in 1.48pct compared with the same period last year. Among them, the sales expense rate was 5% (yoy+1.11%), and the sales expense was 13.5298 million yuan, an increase of 61.10% over the same period last year, mainly due to the increase in travel and other expenses caused by the company's increased market expansion efforts after the epidemic; the administrative expense rate was 5.88% (yoy-0.32%), and the administrative expenses was 15.9299 million yuan, an increase of 19.09% over the same period last year. The financial expense rate was 0.48% (yoy+0.01%), the financial expense was 1.2986 million yuan, an increase of 28.32% over the same period last year; the R & D expenditure rate was 10.03% (yoy-2.28%), and the R & D expenditure was 27.1565 million yuan, an increase of 2.27% over the same period last year.
On September 25, 2020, the company announced that it intends to use its own funds to buy back the company's shares by centralized bidding, with a total repurchase fund of not less than 100 million yuan, no more than 200 million yuan, and a repurchase price of no more than 15 yuan per share. all will be used for the follow-up implementation of equity incentives or employee stock ownership plans, showing the determination and confidence of the company's shareholders and management in the future business development.
Investment suggestion: from 2020 to 2022, the company is expected to achieve operating income of 10.98,13.68 and 1.673 billion yuan, net profit of 3.06,3.71 and 434 million yuan, EPS of 0.50,0.61,0.72 yuan respectively, corresponding to PE of 22X, 18X and 15x, maintaining the "recommended" rating.
Risk tips: the process of electricity reform is not as expected; the process of two-dimensional to three-dimensional design software is not as expected; the transformation of Internet services is not as expected; the risk of a surge in bad debts of accounts receivable.