Core views

The company's performance in the first half of the year showed a marked recovery, and the new tier market and post-service market all achieved steady year-on-year growth. Looking ahead to the whole year, the subsequent recovery on the completion side remains highly certain, and the company's performance is clearly supported. Looking at the medium to long term, the company's future service market is a development strategy. With the support of huge customer resources, nationwide network layout, and brand strength, it is expected to give full play to its leading advantages and achieve steady growth through maintenance, transformation, and installation of the market.

occurrences

The company released the 2023 semi-annual report. In the first half of the year, the company achieved operating income of 10.896 billion yuan, up 22.14% year on year, realized net profit of 556 million yuan, up 30.65% year on year, net profit after deducting 509 million yuan, up 22.02% year on year; achieved revenue of 6.358 billion yuan, up 28.08% year on year, achieved net profit of 325 million yuan, up 25.05% year on year, achieved net profit of 306 million yuan, up 22.17% year on year.

Brief review

Q2 Performance has increased dramatically, and the new tier market has clearly recovered

On the revenue side, in the first half of 2023, the completed housing area was clearly repaired under the impetus of building insurance and delivery. In January-June, the completed housing area increased 19.00% year on year, while the recovery on the completed side led to a marked recovery in the company's new elevator business. In the first half of the year, the company's elevator business increased 20.54% year on year. Among them, elevator equipment sales business increased 16.87% year on year to 6.428 billion yuan. Other businesses such as elevator installation and maintenance increased 10.88% year on year to 3,709 billion yuan. The overall business growth rate was fast. Looking ahead to the second half of the year, it is expected that the completed area will maintain a relatively rapid restoration rate. Under optimistic assumptions, the year-on-year growth rate of the completed area in 2023 is expected to reach 14.19%, which in turn is expected to support market demand in the new tier in the short term.

On the profit side, in the first half of the year, the company achieved a gross profit margin of 15.78%, a year-on-year decrease of 1.12pct, a year-on-year decrease of 7.69%, a year-on-year decrease of 0.36pct; Q2 achieved a gross profit margin of 15.71%, a year-on-year decrease of 0.34 pct, and a net interest rate of 7.63%, a year-on-year decrease of 1.24 pct. Judging from the cost situation, in the first half of the year, the company's sales expense rate, management cost rate, and R&D expense rate were 3.03%, 3.57%, and 3.16%, respectively. The year-on-year changes were -0.43 pct, -0.03 pct, and 0.30 pct, respectively, and the cost rate remained relatively stable. By business, the gross margin of the elevator equipment sales business fell 0.16 pct to 16.87% year on year, and other services such as elevator installation and maintenance fell 2.30% to 13.96% year on year. We judge that the decline in short-term gross margin was mainly due to some adjustments in sales strategy. In the medium to long term, the company's profit center is expected to move upward as its share of the post-market business continues to increase.

The after-sales service market continues to gain strength, and the installation and maintenance market is expected to contribute significantly to the incremental post-service market: the company has formulated a development strategy with “transformation and maintenance business has gradually become an important business growth direction”. Through 94 direct branches and more than 720 maintenance service networks set up throughout the country, it covers all provinces and cities across the country. In the first half of this year, Shanghai Mitsubishi elevator installation, modification and maintenance service revenue accounted for more than 40% of the total elevator business revenue. Among them, the renovation and maintenance business showed an accelerated growth trend.

Looking ahead, by the end of 2022, the company owned more than 1.2 million elevators, accumulated huge customer resources, and laid a deep foundation for the continuous increase in the company's self-maintenance ratio.

Installation market: The installation market ushered in major policy changes in 2023. The “Barrier-free Environment Construction Law of the People's Republic of China” passed on June 28 clearly states that governments at or above the county level should take measures and create conditions to promote the installation of elevators in existing multi-storey houses; at the same time, homeowners should promote the traditional virtues of the Chinese nation, such as being kind, watching and helping each other, strengthen communication and consultation, and cooperate with the installation of elevators or other barrier-free facilities in accordance with the law. This marks that elevator installations have been officially included in the scope of the law, and the bill will be implemented from September 1, 2023. However, according to statistics from the China Elevator Association, there are currently 50 million residential users in existing buildings in China that meet the installation conditions but have no elevators, and the total market volume is expected to be over 2.5 million units. Under policy impetus, huge demand in the installation market is expected to be released. The company's various qualifications are complete. The subsidiary, Jiangsu Hailing Electromechanical Equipment Engineering Co., Ltd., has a full set of qualifications such as the Special Equipment Installation, Renovation and Maintenance License (Elevator) of the Jiangsu Provincial Quality Supervision Bureau, Level 3 Steel Structure Engineering Professional Contracting Level 3, Construction Mechanical and Electrical Installation Engineering Professional Contracting Level 3, Template Scaffolding Professional Contracting Level 3, and the Professional Contracting Level II qualification for lifting equipment installation projects. Currently, the company has launched a full set of qualifications for the installation market.” The “integrated” elevator product uses factory-prefabricated steel structure shafts, reducing construction time by 33% from the original, and at the same time reducing on-site packing by 50% during the construction period. With the support of products and installation services, the company is expected to fully enjoy the expansion dividends brought by the installation market.

Investment suggestions: It is estimated that in 2023-2025, the company will achieve operating income of 25.725 billion, 27.40 billion yuan, and 29.06 billion yuan respectively, and gross profit of 1,195 billion yuan, 1,286 billion yuan, and 1,379 billion yuan. The corresponding PE is 1,26x, 11.49x, and 10.71x, respectively, maintaining the “buy” rating.