Event: the company announced its results for the third quarter of 2020. In the first three quarters of 2020, the company achieved total operating income of 3.09 billion, an increase of 80.5% over the same period last year, and a net profit of 960 million, up 340.1% over the same period last year. Earnings per share were 1.51 yuan.
The high performance of Q3 compared with the same period last year is driven by the scale expansion of the catalytic superposition of overseas epidemic situations. The company's 2020Q3 revenue in a single quarter was 833 million yuan, an increase of 35% over the same period last year, while the net profit after deducting non-return was 226 million yuan, an increase of 142% over the same period last year, achieving a double increase in income and net profit. We believe that the main reasons for the sharp increase in performance are: 1) under the influence of the global epidemic, the global demand for epidemic prevention, especially the demand for medical protective equipment in overseas markets such as Europe and the United States, continues to expand, driving the company's sales of related products (masks, etc.) to continue to increase. 2) on August 18, the 1 billion Ogilvy Medical Disease Prevention and Protective equipment production Base project officially started, which plans to introduce the world's most advanced substrate production equipment and supporting customized automatic and intelligent product deep processing production lines. while expanding the scale of production capacity, it also increases the company's leading edge in technology, quality and cost. 3) the company has high customer recognition, good product reputation, and a significant advantage in the integration of the industrial chain. The gross profit margin in the first three quarters was 43.75%, which was higher than the same period last year, and the profit margin was further improved while the scale was expanded.
The domestic epidemic situation has gradually stabilized, and the Q3 income in a single quarter has declined compared with the previous quarter. Compared with Q1, Q2 had an income of 1.66 billion yuan per quarter, an increase of 177% over the previous quarter, and the net profit of deducting non-return to the mother was 580 million yuan, an increase of 555% over the previous month. The main reason for the substantial increase in performance is the accelerated development of the domestic market: 1) in March, the company signed a strategic cooperation agreement with Chinese medicine equipment and became the main supplier of Chinese medicine equipment French mask project. 2) since the second quarter, the company's medical surgical masks and children's masks have successively entered the retail market such as drugstores; 3) during the two sessions, Chinese medicine equipment Kelaifu masks were used as special protective materials for the two sessions, while Ogilvy Medical undertook most of the supply tasks.
As of 2020H1, the company's domestic market revenue has reached 36%, while the Q3 domestic epidemic is relatively stable, the production base project capacity has not been fully released, the single-quarter performance has declined compared with Q2, the income has dropped 50%, and the return net profit has dropped 61%.
The net interest rate has increased significantly, and cost control has achieved results. In the first three quarters of 2020, the company's net profit rate was 31.1%, an increase in 18.8pct compared with the same period last year. In addition to the improvement in gross profits brought about by the epidemic, it was also due to the success of the company's cost control and the decline in expenses during the period. The financial expenses of the company in the first three quarters were only 2.02 million yuan, a decrease of 92% compared with the same period last year, mainly due to a reduction in interest expenses.
Overseas epidemic continues to ferment in winter, and sales of Q4 epidemic prevention supplies are expected to rebound. The domestic epidemic situation of Q3 is relatively stable, but the overseas epidemic situation continues to spread and ferment. With the drop in temperature and the gradual resumption of work and production in various countries, the pressure on epidemic prevention in Europe and other places may rise. The demand for epidemic prevention products such as masks and protective clothing continues to increase, and the normal start-up of foreign factories is affected, making it difficult to meet their epidemic prevention needs. we expect overseas market expansion to accelerate and the company's Q4 product sales to rebound.
With the increase of industry concentration, leading enterprises are expected to benefit. We believe that overseas markets have higher standards for imported epidemic prevention materials, and there are usually more stringent qualification requirements for cooperative manufacturers, while a large number of domestic small and medium-sized mask manufacturers are difficult to meet their requirements. Therefore, in the case of the calm of the domestic epidemic and the expansion of the overseas epidemic, the industry concentration may be further enhanced, and the leading medical device companies represented by the company are expected to continue to benefit.
Profit forecast and valuation: considering the influence of the company's domestic and foreign brands, the production advantages of the whole industry chain, and the continuous expansion of global demand, we predict that the company's EPS in 2020-2022 will be 1.82,2.09,2.40 yuan respectively, giving a valuation of 18-20 times PE in 2020, corresponding to a reasonable value range of 32.76-36.4 yuan, maintaining a "better than the market" rating.
Risk hint. The risk of macroeconomic fluctuations, the new production line is lower than expected, and the international market is not as expected.