Profit in 2020 is slightly lower than we expected.
The company announced its 2020 results: realized income and return net profit was 9380.213 million yuan, down 5.0% / 11.2% year-on-year, corresponding to 0.20 yuan per share; in a single quarter, 4Q20 revenue and return net profit fell 17.4% to 332,000,000 yuan compared with the same period last year.
Profits were lower than we expected, mainly due to a slowdown in revenue growth due to increased competition in the market.
The proportion of smart meters continued to increase, and the gross profit margin decreased compared with the same period last year. In 2020, the income of instrument manufacturing, software development and urban water supply business changed from-7.3% / + 102.6% to 8.7% 0.4 billion yuan. Among them, the revenue of smart water meters and mechanical water meters decreased by 4.5% 12.6% to 570 million yuan, and the gross profit margin decreased to 41.0% 24.8% compared with the same period last year.
2020/4Q20 's consolidated gross profit margin fell 0.6/2.3ppt to 37.0%. 36.3%.
Net profit margin remained at a high level, while operating cash improved compared with the same period last year. During the period of 2020/4Q20, the expense rate decreased 0.8/1.6ppt compared with the same period last year, mainly due to the decrease in sales fee rate due to the reduction of sales commission incentives. In addition, due to the increase of 23 million yuan in investment income, fair value change income and other income in 2020 over the same period last year, the company's net profit margin increased by 3.3ppt to 22.7% compared with the same period last year, of which 4Q20 increased 3.2ppt. Due to the decrease in the occupation of working capital, the net cash flow of 2020/4Q20 's operating activities increased by 0.36 billion yuan to 0.52 billion yuan over the same period last year.
Trend of development
The trend of smart meter penetration is expected to continue, leading to an increase in revenue and profitability. In terms of income structure, smart meter revenue accounted for 66.1% of instrument business in 2020, an increase of 1.9 ppt over the same period last year. In terms of product unit price, with the increase in the proportion of smart meters with high unit price, the company's instrument unit price in 2020 was about 117 yuan, an increase of 7.3% over the same period last year, and CAGR was 16.7% in the past three years. In terms of profitability, the gross profit margin of smart meters is higher than that of mechanical watches in 2020, and the gross profit margin has been higher than 40% in the past seven years. We expect that the increase in the proportion of smart meters in the future will lead to a long-term increase in the company's gross profit margin.
Profit forecast and valuation
Considering the intensification of market competition, we lowered our 2021 EPS forecast by 8.9% to 0.24 yuan, and introduced a 2022 EPS forecast of 0.28 yuan, corresponding to a year-on-year growth rate of 16%. The company's current share price corresponds to 2021 19.6x/16.9x 2022. Taking into account the profit reduction, we lowered our target price by 13% to $5.74, corresponding to 2021 24.0x/20.8x 2022, which has 23% upside space. Maintain an industry rating that outperforms.
Risk.
The penetration of smart meters is not as expected; the market competition is intensified.