Event: Xinghui Precision released its quarterly report for 2020, and its performance exceeded expectations. The company benefits from cross-border e-commerce, with rapid revenue growth and improved revenue structure leading to higher profitability. In the first three quarters of 2020, the company achieved operating income of 3.466 billion yuan, an increase of 53.06% over the same period last year, and a net profit of 203 million yuan, an increase of 125.09% over the same period last year. Q3 alone realized operating income of 1.412 billion yuan, an increase of 57.52% over the same period last year. The net profit was 76 million yuan, an increase of 120.55% over the same period last year, and the performance exceeded expectations.

The sales revenue of cross-border e-commerce is growing rapidly. Since the beginning of the year, the company has benefited from the rapid growth of sales revenue of cross-border e-commerce, and its revenue / performance has continued to exceed expectations. In the third quarter, the company continued its good momentum in the first half of the year, with an operating income of 1.412 billion yuan in the third quarter alone, an increase of 57.52% over the same period last year. The net profit was 76 million yuan, an increase of 120.55% over the same period last year. IPhone12 will no longer include headphones and chargers. Wireless Bluetooth headset / mobile phone charger, one of Xinghui's main products, is expected to benefit from Amazon.Com Inc's leading sales.

The income structure has improved and the gross profit margin has led to an increase in net profit margin. In the first three quarters, the gross profit margin was 48.65%, an increase of 4.92 pct over the same period last year; the sales / management / financial expense rates were 34.39%, 2.84%, 1.82%, respectively, and the year-on-year change + 1.67/-1.65/1.72pct. The increase in financial costs is mainly due to the increase in the scale of financing and the impact of exchange rate changes. In the third quarter, the gross profit margin was 48.91%, an increase of 6.77pct over the same period last year, and the sales / management / financial expense rate was 34.40%, 2.58%, 3.27%, respectively, and the year-on-year change + 1.36/-1.50/4.12pct. The increase in gross profit led to a net interest rate of 6.14% in the first three quarters, an increase in 6.15pct over the same period last year, and a net profit rate of 5.76% in the third quarter alone, an increase in 1.83pct.

High-quality cross-border e-commerce leader, excellent financial indicators and broad room for growth. The company operates cross-border e-commerce with a "boutique" strategy, with only more than 100 SKU, all of which are independent brands and patented. The company plays a leading role in the research, product design, research and development of customer market demand, so it has higher technical barriers and profit space. A small amount of focus on the SKU business strategy makes the company's inventory turnover faster than the "universal" model, less inventory impairment risk and healthier cash flow. The company's asset impairment in the first three quarters of 2020 is 8.8402 million, accounting for 0.26% of operating income, and the risk of inventory impairment can be controlled. With the further refinement of the company's single product management and the expansion of offline and other channels, the company is expected to maintain rapid growth.

Investment advice: the company's performance continues to exceed expectations. It is estimated that the company's net profit in 2020Universe 2021 will be 3.03 / 521 million yuan respectively, an increase of 104%, 30% and 32% over the same period last year, corresponding to 23 times of PE in 2020, maintaining the "highly recommended-A" rating.

Risk tips: Sino-US trade frictions affect cross-border e-commerce business; the epidemic has an impact on the company's supply chain; the risk of dependence on third-party platforms; the risk of exchange rate changes.