Overview of events
According to the company's three-quarter report for 2020, 2020Q1~Q3 achieved revenue of 5.641 billion yuan, year-on-year + 33.35%, net profit of 503 million yuan, + 48.45%, and non-return net profit of 424 million yuan, + 26.95%, of which 2020Q3 realized revenue of 2.142 billion yuan, year-on-year + 40.91%, net profit of 167 million yuan, + 34.74%, and non-return net profit of 124 million yuan, 7.54%.
Analysis and judgment:
Continuous contribution to the improvement of the structure of incremental hair products
2020Q3's revenue is + 40.91% compared with the same period last year, maintaining rapid growth, and the core increment is expected to be mainly contributed by the general computer business. In 2000, the company cut into the field of ventilation with general machine power, and completed the acquisition of Dajiang Power, a manufacturer of general machine terminal products in 2018. General Machine Company and Dajiang Power formed effective coordination in the links of "procurement, research and development, manufacturing, marketing". General Dynamics and terminal products complement each other. The company's largest customer, American garden machinery supplier MTD, is in trouble. We expect that MTD will transfer most of its orders to the company, leading to a further increase in the scale of its export business. Affected by the shrinking demand downstream, the company's motorcycle engine sales have declined, but on the one hand, the company supports Zongshen Sekron and Zongshenbiacho within the system, and on the other hand, it actively opens up external customers to improve the product structure of motorcycle engines. Mofa plate performance is still robust.
Gross profit margin has declined exchange losses and impairment affect short-term performance 2020Q3 gross margin year-on-year-2.30pct to 16.76%, is expected to be mainly affected by changes in product structure. Period expense rate year-on-year-0.39pct to 10.74%, of which:
Thanks to the rapid growth of revenue, the rates of sales, management and R & D expenses have all declined. The sales expense rate is from-2.05pct to 3.16%, the management expense rate is from-1.50pct to 2.05%, and the R & D expense rate is from-0.25pct to 2.29%. The financial expense rate has increased significantly to 3.25%, mainly affected by exchange losses. Affected by the decline in gross profit margin, exchange losses and provision of asset / credit impairment losses, Q3 company's net profit margin was-0.74pct to 8.46% year-on-year. It is expected that with the further optimization of the product structure of Motorcycle and the rapid growth of revenue from the aviation business with high gross margin, the company still has room to improve its profitability.
Zong Shen Hangfa completes capital increase to speed up production
In the traditional main business of the company, the downstream demand of motorcycle engine business has shrunk as a whole. in order to maintain business growth, aero-engine business has become the focus of the company. In August 2020, the company announced Zongshen Hangfa's second round of capital increase plan, and in October announced the completion of the second round of capital increase, introducing six strategic investors, including Shaanxi Skysky Yunhai Venture Capital Partnership (limited partnership), to increase capital by 125 million yuan. The company's shareholding in Zongshen Hangfa decreased from 97.67% to 78.07%. Since 2019, Zongshen Hangfa has achieved mass production of C08, C12, C115, C145 and other products, among which the sales of the core product C115 piston engine has increased steadily. The successful completion of the second round of capital increase means that Zongshen Hangfa has received strong capital support in new product research and development, market development and scientific research experiments, which is conducive to the steady progress of the spin-off and listing of the aviation development business. The gross profit margin of the aviation development business is far higher than that of Motorcycle and other businesses, and revenue growth will lead to an improvement in the overall profitability of the company.
Investment suggestion
Keeping the profit forecast unchanged, the company's homing net profit for 2020-22 is expected to be 792, 1019 million yuan, corresponding to EPS 0.57, 0.69, 0.89, and current share price corresponding to 14.0, 11.5, and 8.9 times of PE. With reference to the company's historical valuation range, and taking into account the growth of aviation development business, the company is valued at 25 times PE in 2021, maintaining the target price of 17.25 yuan. Maintain a "buy" rating.
Risk hint
The scale of motorcycle production and sales has further shrunk; the progress of business development of medium and large displacement motorcycle engines is lower than expected; the proportion of overseas customers of General Dynamics is lower than expected; and the development progress of Hangfa business is lower than expected.