Incident: The company announced the 2022 restricted stock incentive plan (draft). The number of restricted shares to be granted to incentive targets under the incentive plan was 1,684,800 shares, accounting for about 0.68% of the company's total share capital at the time the draft incentive plan was announced. The total number of incentive targets was 101.
Comment: Equity incentives show confidence, and performance assessment goals set the tone for the company's mid-term development. This assessment is a branch-level performance assessment and an individual-level assessment. On the company side, the incentive plan assesses the company's performance indicators on a yearly basis in the 2022-2024 fiscal year. The assessment targets are: based on net profit deducted from non-return mothers in 2021, the target net profit growth rate for 2022/2023/2024 is not less than 30%/95%/192.5%, and the trigger values are not less than 24%, 76%, and 154%; at the individual level, it is divided into four grades of excellent, good, qualified and unqualified. The standard coefficients are 100%/80%/60% /0, respectively. The assessment indicators and settings of this equity incentive plan have good rationality. At the same time, they are binding on the incentive targets, setting the tone for the company's mid-term development.
The company's performance declined due to multiple factors, and is expected to improve in the second half of the year. 2022H1 achieved revenue of 431 million, 29.86% year on year; net profit of the mother was 55 million, -16.47% year on year. Three factors led to a decline in the company's performance while revenue was growing rapidly: 1) the total credit impairment loss in the first half of the year was 15.28 million yuan, an increase of 403% over the previous year; 2) interest expenses on convertible bonds led to an increase in the company's financial expenses; 3) the development of new products led to an increase in R&D expenses. Results for the second half of the year are expected to pick up as related expenses have already been incurred and credit impairment is calculated centrally in 2021H2 and 202H1.
Policy dividends have been implemented, and the future market is broad. The “Regulations on the Management of Seismic Resistance in Construction Projects” were promulgated on May 12, 2021, and will take effect from September 1, 2021. The regulation requires that specific projects located in high-intensity fortified areas and earthquake-focused surveillance and defense zones throughout the country should use seismic isolation and damping technology. After the implementation of the above policies, the market space of the earthquake mitigation industry is expected to increase dramatically in the future.
The company uses simple procedures to issue shares to specific targets and actively expands production capacity. The company announced in June 2022 that it plans to raise no more than 250 million yuan of additional capital, mainly for the construction of 100,000 sets of intelligent dampers, 15,000 sets of hydraulic dampers for nuclear power plants and 25,000 accessories projects (phase I) and other projects. The completion of the project can increase production capacity and production efficiency to meet rapidly growing market demand; enhance the company's ability to reduce shock (vibration) products and enrich the company's product structure; improve the company's industrial base construction layout, and enhance the company's competitiveness outside of Yunnan Province.
Maintain the company's “increase holdings” rating. The company's net profit from 2022 to 2024 is expected to reach 220, 43, and 670 million yuan respectively, up 155%, 93%, and 55% over the previous year, corresponding valuations 53, 27, and 18 times.
Risk warning: Policy promotion falls short of expectations; valuations and profit forecasts fall short of expectations.