1. Incidents
The company released its report for the third quarter of 2020. It achieved revenue of 2,795 million yuan in the first three quarters, an increase of 5.07% over the previous year, net profit of 363 million yuan, an increase of 24.34% over the previous year, after deducting net profit of 344 million yuan from non-return mothers, an increase of 1618.50% over the previous year.
2. Our analysis and judgment
(1) Overcoming the impact of the epidemic, the company's development has entered the fast track
In the first three quarters, the company's revenue and net profit to the mother continued to grow. The company's revenue from Q1 to Q3 increased by -52.08%, 12.00% and 42.99%, respectively, while the net profit of its mother increased by -236.46%, 30.13%, and 93.45%, respectively. Q1 Affected by the epidemic, in particular, the suspension of production by two subsidiaries in Hubei caused the company to lose money. In the second and third quarters, the company's military and civilian goods orders showed a compensatory increase after the epidemic improved, turning a loss into a profit, and the increase continued to expand, indicating that the company may have escaped the impact of the epidemic. The Q3 performance of upstream electronic components companies increased dramatically. As the middle and lower reaches of the industrial chain, the company's main business revenue also showed a trend of marginal increase and expansion. Strong downstream demand was confirmed and is expected to continue. We believe that the company's Q4 performance can still maintain relatively rapid growth.
In the first three quarters, the company's net sales interest rates were -10.49%, 12.73%, and 13.00%, respectively. The cost rates for the period were 44.46%, 17.91%, and 17.45% respectively. The increase in net sales interest rate and the decline in the period expense ratio indicate the continuous improvement of the company's operating capacity.
(2) The merger of the two ships did not affect the company's position. The later injection can be expected in the early stages. China Shipbuilding Technology, which is in the same field of marine electronic information as the company, positioned the company as a diversified development platform for high-tech and new industries, and stopped injecting Seahawk assets at the end of 2019. The positioning of China Coastal Defense as an innovative platform for the Group's electronic information sector did not change after the merger of the two ships. Therefore, China Shipbuilding Group's electronic information platform currently has only China Haifang, and the company's positioning is very clear.
China Shipbuilding Group's electronic information assets mainly include underwater hydroacoustic assets and underwater electronic assets. Currently, some hydroacoustic assets have been injected into the company. China Shipbuilding Group's marine electronic information assets are the core equipment provider for naval combat command systems. They cover the main part of the “China Aegis” system and are high-quality assets within the industry. According to the company's positioning, the above assets are expected to be injected into the company in the future. At that time, the company's value will be further enhanced, making China's Haiphong a leading enterprise in marine electronic information.
(3) The external format is tightening. The company will benefit from the development of naval equipment. Recently, the confrontation between China and the US has intensified and gradually spread to many fields. At the maritime defense level, the national defense and security situation in the South China Sea and the surrounding waters of China is even more serious. The construction of a synthetic, multi-functional, and efficient maritime combat force system required by the naval offshore defense and offshore security strategy is becoming more urgent. Strengthening maritime military power construction has become a necessary means to safeguard national sovereignty and maritime rights and interests. Therefore, future naval construction will continue to advance, leading enterprises in marine electronic information, and will benefit companies in the future National Maritime Strategy and the development of naval equipment.
3. Investment recommendations
The company's net profit is expected to be 740 million yuan, 860 million yuan, and 980 million yuan, and the EPS is 1.04 yuan, 1.21 yuan and 1.38 yuan respectively. The current stock price corresponding to PE is 34x, 30x, and 26x, which is significantly lower than the industry average, maintaining “recommendation”
ratings.
Risk warning: The risk that military goods orders fall short of expectations.
