Forecast profit year-on-year-3%-1%
The company announced its 2019 performance forecast: the net profit of returning to its mother was 158 million yuan to 164 million yuan,-3% and 1% compared with the same period last year. The non-recurring profit and loss in 2019 was 12.74 million yuan, and the non-return net profit was 145 million yuan to 152 million yuan, 1% or 5% of the same period last year. The performance is higher than we expected.
Pay attention to the main points
4Q19 washing machine drainage pump demand improvement: 1) 4Q19 homing net profit of 47 million yuan to 54 million yuan, an increase of 29.6% to 47.5% over the same period last year. After deducting non-recurrent profit and loss of 7.82 million yuan and deducting non-return net profit of 39 million yuan to 46 million yuan, the net profit increased by 13% to 31% over the same period last year. 2) the company is the global leader in washing machine drainage pumps, and revenue growth has slowed since 2017 under the background of no obvious breakthrough in new business. Especially during the Sino-US trade friction, tariffs were imposed on drainage pumps and US customer orders fluctuated. 3) the company's drainage pump has unique technology, low cost and excellent performance. The main customers of 4Q19 have increased their purchasing volume, increased their market share and improved their operations. We expect revenue growth to improve in 2020 as well. In 2017 and 2018, the company's revenue grew by only 2.6% and 2.0% from the same period last year.
Strive for a breakthrough in new business: 1) the company expects to launch new business in water pumps and charging piles for new energy vehicles. This market has high barriers to entry, long cycle, and has not yet produced a significant revenue contribution. The company has tried to acquire Shenpeng Electronics to speed up its entry. Shenpeng Electronics' main business is electronic water pumps in the automotive electronics and home appliance industries, but the acquisition price has not been agreed, and the acquisition was terminated in November 2019. 2) the company continues to promote the sale of spa toilets. As a new and innovative product, spa toilet is beneficial to gastrointestinal care, but the function of the product is too novel, lack of consumer awareness, and the sales scale is small.
The company is highly competitive and stable in the global washing machine drainage pump market. However, if there is to be sustained high growth, we think we need to make breakthroughs in new business.
Valuation and suggestion
Due to the higher-than-expected performance, we raised the 2019 EPS forecast for 2020 by 8% to 0.27 yuan / 0.30 yuan, and introduced the 2021 EPS forecast of 0.33 yuan. Maintain its neutral rating and raise its target price by 8 per cent to Rmb6.16, corresponding to the 2020 price-to-earnings ratio of 23.2x/20.6x 2019, which has 15 per cent upside from the current share price. The current share price corresponds to the annual price-to-earnings ratio of 20.3x/17.9x2019/2020.
Risk
RMB exchange rate fluctuation risk; Sino-US trade friction risk; new business development risk.
