The performance is affected by the epidemic and can still be seen in the future. The company achieved a cumulative operating income of 660 million yuan in the first three quarters of 2020, yoy6.3%; achieved a cumulative net profit of 160 million yuan in the first three quarters, yoy-1.7%, deducted 140 million yuan in non-return net profit, yoy1.8%. Among them, the third quarter revenue of 260 million yuan, yoy24.3%; third quarter return net profit of 57.296 million yuan, yoy16.9%, deducted non-return net profit of 55.234 million yuan, yoy21.1%. The main reason is that the company's operation was greatly affected by the COVID-19 epidemic in the first quarter, the resumption of work was delayed, production and operation gradually returned to normal in the second and third quarters, and the company's business continued to grow steadily.
The gross profit margin fell and the expense rate decreased. The company's consolidated gross profit margin for the first three quarters of 2020 was 42.0% (yoy-4.1pct), or the net profit margin was 24.0% (yoy-1.4pct) as a result of the rising cost of vehicle testing systems and the decline in gross margins. During the first three quarters, the expense rate was 14.6% (yoy-1.0pct), of which the sales, management and financial expense rates were 6.7%, 8.2%, 0.4% and-0.5pct/-0.6pct/+0.1pct, respectively. The company has achieved obvious results in promoting cost control. The net cash flow generated by 2020Q1-Q3 's operating activities changed from positive to negative to-80 million yuan. Yoy-133.9%, was mainly due to a substantial increase in the payment of bills and payments to suppliers.
Downstream integration is worth looking forward to. The operation space of motor vehicle testing is broad, the rate of return is high, and the market space is more than 60 billion, which is ten times that of the upstream testing system. After 2014, the market is gradually liberalized, but the region is obviously separated, and most of it is managed by local capital. We believe that as a major upstream equipment provider, with its strong information advantages and war investment resources, it is expected to integrate the downstream testing operation market through mergers and acquisitions. At present, the company has intervened in the operation of automobile testing stations by setting up funds and acquisitions (Xingshi Inspection, China Inspection Group Automobile Inspection Co., Ltd., Linyi Zhengzhi, etc.), and has been laid out in Qingdao, Texas and other places. the future downstream integration is worth looking forward to.
A steady increase will help the development. The total amount of additional funds to be raised by the company will not exceed 1.3 billion yuan, which will be used to supplement the funds for downstream integration and chain vehicle inspection station construction projects, to acquire 70% equity interest in Linyi Zhengzhi with 300 million yuan (the ownership has been transferred in July 2020), and to promise a net profit of 3800 gambit 4300,000,000 yuan respectively from 2020 to 2023, corresponding to 2020 PE11.2x, with reasonable consideration.
Investment suggestion: the policy dividend of the motor vehicle inspection industry continues, the demand for new testing stations, the renewal demand for the environmental inspection line, and the demand for the "three-in-one" of trucks will all enhance the prosperity of the testing system. In addition, the company also actively layout the downstream space of the detection station operation and maintenance business, integration is worth looking forward to. It is estimated that the EPS in 2020-2022 will be 1.14 + 2.11 + 2.93, corresponding to 37.9X/20.6X/14.8X, which will be optimistic about the extended integration downstream of the company and maintain the "buy" rating.
Risk tips: downstream integration is not as expected; equipment orders are not as expected; remote sensing testing bidding is not as expected.
