3Q20 performance is in line with our expectations
The company announced 1-3Q20 results: revenue of 2.515 billion yuan, down 1.6% from the same period last year, and net profit of 390 million yuan, an increase of 82.6% over the same period last year. In a single quarter, 3Q20's revenue / return net profit was 873 million yuan, up 18.3% and 77.3% over the same period last year.
3Q20 gross profit margin remained high and expenses were well controlled during the period. 3Q20's comprehensive gross profit margin was 39.6%, unchanged from the same period last year, and the month-on-month increase in 2.7ppt led to a year-on-year increase in 1-3Q gross profit margin by 3.7ppt to 36.9%. During the period of 3Q20, the expense rate decreased 1.0ppt compared with the same period last year, in which the sales / R & D expense rate decreased 0.8/0.6ppt compared with the same period last year, and the financial expense rate increased 0.3ppt.
Longxin divestiture promotes profitability. 3Q19 Longxin Technology has not yet made a statement, and the provision for bad debts has led to a loss of 35.44 million yuan in the company's credit impairment, accounting for 4.8% of the income, which is higher 4.0ppt than 3Q20. Thanks to improved operations, 3Q20's net profit margin rose 5.3ppt to 15.5 per cent year-on-year. The net inflow of operating cash of 3Q20 Company was 39 million yuan, which was 54 million yuan less than the same period last year, mainly due to the slowdown of downstream remittances caused by the epidemic.
Trend of development
Be optimistic about the growth prospect of urban rail business. By the end of the 3Q20 period, the operating mileage of China's urban rail is about 7142 km, with an increase of 405km in the previous quarter. We expect the new mileage to exceed 1000 km in 2020, and the delivery volume of urban rail vehicles industry will exceed 9000. Subject to the dividend of the "new infrastructure" policy, we expect that the new operating mileage of urban rail and the number of vehicle bids will remain high during the 14th five-year Plan period.
It is expected that the demand of new energy vehicle industry will continue to recover. The domestic new energy market has improved significantly since the third quarter, with year-on-year growth of 41 per cent in new energy vehicle sales (down 41 per cent in 1H20). We expect the industry to continue its recovery in 2021. The company has accumulated rich production experience and customer resources in the field of connectors, and has entered SAIC, Geely, BYD and other high-quality customers. Automobile electrification is highly deterministic and shows an accelerating trend, and we expect that with the release of downstream demand, the company's new energy vehicle connector business is expected to enter the fast lane of growth.
Profit forecast and valuation
Due to the better-than-expected improvement in the company's main business, we raised our EPS forecast for 2020 to 6.4% to 0.51 yuan, and maintained the 2021 forecast of 0.56 yuan. The company's current share price corresponds to 11.0 times 2020 / 2021 12.1 pound E. We maintain our target price of 8.38 yuan, which corresponds to 15 times PPink E in 2021, which is 36% upside from the current stock price and maintains a neutral rating.
Risk.
The downstream bidding is not as expected.