3Q20 performance is lower than we expected.
The company announced 1-3Q20 results: revenue was 860 million yuan, down 18.1% from the same period last year, and net profit from home was 57 million yuan, up 67.5% from the same period last year, deducting 11 million yuan from non-home net profit, down 58.6% from the same period last year. The performance was lower than expected, mainly due to lower-than-expected delivery of orders. In a single quarter, 3Q20's revenue fell 9.0% year-on-year to 318 million yuan, and its net profit was 33 million yuan, compared with 2.17 million yuan in the same period last year, mainly due to an increase in fair value changes.
The comprehensive gross profit margin increased compared with the same period last year, and the expense rate increased over the same period last year. 1-3Q20's gross profit margin increased to 34.3% year-on-year, mainly due to the optimization of product structure, the proportion of ground electrical equipment business with high gross margin increased. During the period of 1-3Q20, the expense rate increased by 3.6ppt compared with the same period last year, in which the management / R & D / financial expense rate increased by 0.5/2.2/0.8ppt to 10.0%, 4.9% and 6.0%, respectively.
Non-recurring profit and loss contributed to profit growth, while operating cash decreased compared with the same period last year. Benefiting from the fair value gain of 50.92 million yuan from other non-current financial assets, the net profit margin of 1-3Q20 increased by 3.4ppt to 6.7% compared with the same period last year. 1-3Q20 Company has a net operating cash outflow of 23.66 million yuan, of which 3Q20 has a net inflow of 12.55 million yuan, which is 28.65 million yuan less than the same period last year.
Trend of development
Carry out in-depth cooperation with local subway companies. In August, the cooperation project of medium / high frequency AC auxiliary power supply for subway trains carried out by the company and Guangzhou Metro passed the pre-passenger review. By the end of 3Q20, the product has entered the stage of "50,000 km passenger operation"; in addition, 3Q20 and Shanghai Metro maintenance Company have signed a strategic cooperation agreement to enhance the application reliability of the company's power supply system, and the two parties will promote technological progress and market-oriented application by setting up laboratories, technology research and development, demonstration applications, etc.
Urban rail construction is expected to speed up the recovery. 1-3Q20 the mileage of the newly opened urban rail in China is about 405km. We expect that the mileage of the new opening is expected to exceed 1000 km in the whole year, and the fourth quarter will usher in a delivery-intensive period. At present, the share of the company's vehicle air conditioning / signal power supply system in the urban rail market is about 30% and 85% respectively. With the acceleration of urban rail construction, we expect the company's profits to return to growth.
Profit forecast and valuation
Taking into account the increase in asset return and the acceleration of urban rail construction, we raise the forecast of EPS by 54% in 2021 to 0.14% in 2021. The company's current share price corresponds to 55.7 times of 2020 / 2021. Taking into account the earnings increase, based on the 2021 45 times Pamp E, we raised the target price by 11% to 7.70 yuan, with 2% downside, maintaining a neutral rating.
Risk.
The lower-than-expected profit of the subsidiary leads to the impairment of goodwill.
