The consolidation of projects under construction suppresses performance and maintains a "buy" rating of 1-3Q20. The company achieves revenue / return net profit / deduction of non-return net profit of 50,000,000 yuan, compared with the same period of last year. The net profit of return to mother is 51% and 73% compared with the same period last year. The net profit of return to home is in line with the median of performance forecast (60 million yuan), and the non-recurrent profit and loss is mainly government subsidy of 31.11 million yuan. 3Q20 realized revenue / return net profit / deduction of non-return net profit of RMB 19.3 billion, compared with the same period last year. The conversion of projects under construction pushed up depreciation and financial expenses, affecting the significant decline in 3Q20 return net profit. We adjust the forecast of return net profit from 2020 to 2022 to 1.2 million yuan, corresponding to an EPS of 0.16, 0.34 and 0.44 yuan, and give a target PE of 35x in 2021, with a target price of 11.80 yuan, maintaining the "buy" rating.

The conversion of projects under construction pushed up depreciation and financial expenses, affecting the decline in 3Q20 homing net profit. 3Q20's operating income fell 11% year-on-year to 190 million yuan, and gross profit margin decreased 7.3pct to 46.4% year-on-year. This is mainly due to the completion and consolidation of the 1200KV 150KA project in November 19, resulting in a significant increase in depreciation expenses compared with the same period last year. The expenditure rate during the period is from + 1.6pct to 37.6% compared with the same period last year, of which the financial expense rate is year-on-year + 3.3pct, due to the gradual consolidation of projects under construction, the increase in project loan interest expense, the year-on-year flat /-0.8pct/-0.9pct of sales / management / R & D expense rates, and the effectiveness of the company's cost control. Changes in fair value / other income (increase in government subsidies) year-on-year-689 pounds 4.72 million yuan, the combined impact of home net profit-46% to 30 million yuan.

High investment is expected to lead to high profit growth, and in the future, it is expected to benefit from counter-cyclical regulation and UHV acceleration. The high investment of the company in the past few years has led to many world firsts in its detection capability in the electrical field. The increase in depreciation costs brought about by the conversion of major projects makes the company's net interest rate fluctuate greatly, but EBITDA keeps growing rapidly, with CAGR reaching 26% in 2016-2019, and EBITDA profit margin increased from 51% to 63%. State Grid investment increased significantly in 2020. In July, State Grid (unlisted) said at a mid-year working meeting that it would increase its fixed investment to 460 billion yuan, an increase of 13% over the planned investment at the beginning of the year, and is expected to speed up the construction and transformation of UHV supporting projects. as a leader in the field of high and low voltage electrical appliances testing in China, the company is expected to fully benefit.

The company implements repurchase to boost market confidence and maintains that the "Buy" rating company passed the buyback bill in August. Based on the confidence and value recognition of future development, the company plans to buy back shares at a maximum of RMB9.70 million per share. Later implementation of the equity incentive plan or employee stock ownership plan or cancellation in accordance with the law, as of 9x30 cumulative repurchase total 1.75 million yuan. Considering that the company's revenue declined in the third quarter compared with the same period last year, and the costs and financial expenses increased significantly, we adjusted the 20-22 net profit forecast for return to the mother of 1.2 million yuan (the previous value is 1.7 million yuan), corresponding to an EPS of 0.16 yuan (0.34 yuan) and an average PE of 0.44 yuan (0.22 yuan), referring to the company's 21-year Wind consensus forecast of 35x. As the testing leader of high and low voltage electrical appliances, the company is in the lead in technology and qualification, giving the target PE of 35x in 21 years, with a target price of 11.80yuan (the previous value is 12.89yuan) to maintain "buy".

Risk tip: revenue is lower than expected and profit margins are rising at a slower rate than expected.