Performance review
1Q20 performance is in line with our expectations
The company announced 1Q20 results: revenue was 185 million yuan, down 10.0% from the same period last year; net profit from home was 30.39 million yuan, down 11.5% from the same period last year. The company's performance is in line with our expectations.
Overseas business accounts for a high proportion, and the impact of the 1Q20 epidemic is limited: 1) the company is the global leader in washing machine drainage pumps, accounting for 62% of overseas business revenue in 2019. 2) as the overseas epidemic of 1Q20 has not spread, the company has actively resumed work and production to reduce the negative impact of the epidemic on operation, and the decline in income is relatively small. 3) in the long run, the company still faces the bottleneck of developing new business. 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. In addition, 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.
Strict control of expenses, net interest rate remains stable: 1) the rate of expenses (sales + management + R & D) during the 1Q20 period decreased slightly compared with the same period last year 0.2ppt, during the decline in revenue, the company strictly controlled expenses, management expenses and R & D expenses were lower than the same period last year. 2) the company hedges RMB exchange rate fluctuations through forward contracts. Due to the devaluation of the RMB, the financial expenses of 1Q20 decreased by 6.74 million yuan compared with the same period last year, and the loss of fair value changes in forward foreign exchange contracts increased by 6.67 million yuan compared with the same period last year. 3) the above factors caused the company's net interest rate to be reduced only slightly by 0.3ppt to 16.4% compared with the same period last year, and there was no significant decrease due to the rigidity of fixed fees.
Trend of development
2Q20 overseas business faces epidemic risk: the company's drainage pump business customers include Whirlpool, GE, Japan and South Korea Samsung, LG, Toshiba, Sharp, Europe Electrolux, Siemens and other overseas brands. Affected by the spread of the global epidemic, we expect 2Q20's overseas business to face declining revenue pressure.
Profit forecast and valuation
We maintain the 2020 EPS 2021 forecast of 0.28 pound 0.33 yuan. Maintain a neutral rating and a target price of 5.70 yuan, corresponding to 20.5 times 2020 price-to-earnings ratio and 17.3 times 2021 price-to-earnings ratio, which has 13.1% upside compared to the current stock price. The current share price corresponds to 18.1 times 2020 / 2021 / 15.3 times earnings.
Risk
The negative impact of the epidemic exceeded expectations; the risk of new business development.
