Real estate recovery drives post-cycle of real estate. The growth rate of sales area of commodity houses hit bottom in February 2019 and rebounded in March 2019. Driven by the rebound of sales, the investment in real estate development and the growth rate of new housing starts have both rebounded. Among them, the growth rate of new housing starts has rebounded to 11.90%. In addition, due to the tightening of real estate financing space in 2018, real estate enterprises have accelerated pre-sale receipts. The inertia of last year's new housing starts and the double effect of this year's sales rebound will drive the recovery of the elevator industry, which will continue to rise in construction area and completion area in 2019.
The demand for elevators is released by adding elevators to old buildings and updating old elevators. Since the 1980s, there have been 8 billion square meters of existing buildings without elevators installed, most of which are resold houses, and it is conservatively estimated that the demand for elevators is 2 million units according to the number of registered resold houses. At the same time, since January 2019, the National Development and Reform Commission has proposed a subsidy plan for adding elevators to old buildings, which is of great significance for promoting the elevator transformation of old buildings.
Maintenance business is expected to become a new growth point. As elevator use gradually improves and the addition and update of elevators enter a steady period, elevator enterprises will shift from manufacturing to services. Taking the elevator industry in the United States as an example, the proportion of maintenance business revenue in the industry averages 50%. In 2018, Shanghai Mechanical & Electrical Industry had installation and maintenance revenue of 6 billion yuan, accounting for 30% of the revenue, but there is still much room for growth compared with international standards.Shanghai Mechanical & Electrical IndustryIn 2018, the company's installation and maintenance revenue reached 6 billion yuan, accounting for 30% of its revenue, but there is still much room for growth compared with international standards.
Reducer business creates potential growth space for the company's future. The installed capacity of our country has increased significantly, from 25 units/10,000 people in 2013 to 100 units/10,000 people in 2017, and the cumulative sales of industrial robots have reached nearly 500,000 units. Precision reducers are the core components and main cost of modern industrial robots, accounting for about 35% of the cost of robots. The wide use of industrial robots gives reducers a stable demand space. Shanghai Mechanical & Electrical Industry's joint venture production of reducers with Nabtesco Corporation is expected to seize the growth opportunity of demand and bring new growth space to the company.Siasun Robot&Automation
Earnings forecast: We expect the company's operating income to be 23.4 billion yuan, 25.8 billion yuan, and 28.5 billion yuan, respectively, from 2019 to 2021; the net profit attributable to the parent company is expected to be 1.41 billion yuan, 1.62 billion yuan and 1.86 billion yuan, respectively, with EPS of 1.38 yuan, 1.58 yuan and 1.82 yuan, and corresponding PE of 11X, 10X and 8X. We initiate coverage and give a"Strong Buy" rating.
Shanghai Mechanical & Electrical Industry (600835) elevator business has stabilized and rebounded, and reducers have potential for growth.