2019 performance is in line with our expectations
The company announced its 2019 results: revenue of 864 million yuan, an increase of 8.8% over the same period last year; net profit of 163 million yuan, unchanged from the same period last year; dividend per share of 0.14 yuan, dividend rate of 37%; together with interim dividend, the dividend rate of 2019 was 88.75%. Corresponding to 4Q19 revenue of 241 million yuan, an increase of 18.4% over the same period last year, and net profit of 52 million yuan, up 44% over the same period last year. The company's performance is in line with our expectations.
Quarterly revenue fluctuations: 1) the company is the leader of the global washing machine drainage pump, the main business revenue has slowed since 2017, the new business has not yet made a breakthrough. 2) the revenue fluctuated greatly in 2019 due to the trade friction between China and the United States. 1Q19\ 2Q19\ 3Q19\ 4Q19 revenue + 15.6%, + 2.7%,-0.1%, + 18.4%. 2) in 2019, the company's drainage pump business income was + 7% compared with the same period last year, of which the revenue of general drainage pumps, special drainage pumps, washing pumps and condensation pumps were + 11%, + 3%, + 1% and-9% respectively compared with the same period last year.
Export order concession: 1) RMB depreciated by 3% in 2019, but the company's export gross profit margin was from-1.3ppt to 39.6%, and the comprehensive gross profit margin was from-1.3ppt to 36.9%, which did not benefit from the increase in gross profit margin brought about by RMB depreciation as in history. Under the pressure of trade friction between China and the United States, the company's export products have been reduced to a certain extent in order to avoid the loss of customers after the imposition of tariffs.
2) in order to avoid tariff risk, the Thai subsidiary is under construction. At present, the installation and commissioning of the production line is basically ready, and the training of personnel has been basically completed.
Due to the negative impact of the epidemic, the company expects 1Q20 net profit to fall by 60%, 30%, compared with the same period last year.
Trend of development
There is more investment in R & D to strive to break through new business: 1) the R & D expenditure rate in 2019 is as high as 5.9%, and the new patents include a number of patents related to charging piles and new energy auto parts. 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. 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.
Profit forecast and valuation
Taking into account the impact of the epidemic, we lowered the EPS forecast for 2020 by 7% to 0.28 yuan, and maintained the EPS forecast for 2021 by 0.33 yuan. To maintain the neutral rating, due to the downgrade of the earnings forecast, we lowered the target price by 7% to 5.70 yuan corresponding to 20.5 times 2020 price-to-earnings ratio and 17.3 times 2021 price-to-earnings ratio, which has 10.0% upside space compared with the current stock price. The current share price corresponds to a price-to-earnings ratio of 18.6 times 2021 / 15.8 times earnings.
Risk
The negative impact of the epidemic exceeded expectations; the risk of new business development.
