In 2020, the company achieved steady and substantial growth in revenue and profits: operating income reached 4.28 billion yuan, an increase of 16.84% over the same period last year, a record high Profitability increased significantly over the same period last year, with a net profit of 485 million yuan belonging to shareholders of listed companies (the amortization cost of the company's implementation of the second employee stock ownership plan and stock option incentive plan in 2020 affected the total pre-tax profit of 12.66 million yuan), an increase of 92.90% over the same period last year. Looking forward to 2021, the acceleration of infrastructure investment, the acceleration of industry clearance and the stabilization of real estate, the industry is expected to continue the boom. At present, the biggest risk in the industry comes from the rising prices of raw materials (mainly steel). Kangli has been in the forefront of the industry in cost control, and is expected to maintain profitability and highly recommended ratings through cost control and economies of scale in 2021.

The main reasons why the growth rate of net profit far exceeds the growth rate of income include: (1) the gross profit margin has improved, and the average gross profit margin of main business in 2020 increased by 0.78% compared with the same period last year. Among them, the gross profit margin of elevators and escalators increased by 1.38% and 2.99% respectively, and the gross profit margin of spare parts increased by 2.50% over the same period, mainly due to the company's research on the supply and demand of raw materials market. Timely lock in the purchase price of some raw materials, which is conducive to the stable increase of gross profit margin. (2) the declining effect of steel prices in the first three quarters of 2020 will also be transmitted to outsourced components. Under the premise of ensuring supply quality and timely delivery, the purchasing department of the company group has fully communicated with suppliers. The price of purchased parts has been adjusted to a certain extent, and the reduction in the cost of purchased parts has also made a certain contribution to the increase in the company's gross profit margin (the increase in the price of raw materials weakened in the fourth quarter). (3) the company continues to invest in R & D, and with the investment of intelligent production line, the upgrading of intelligent manufacturing plant and the commissioning of test center, the production process is optimized, the production tooling capacity is improved, the product design is improved, the product unit cost is reduced, and the product competitiveness of the company is improved. (4) scale effect + meticulous management, all staff make concerted efforts to strictly control various costs, the sales expense rate in 2020 is 9.62%, which is lower than that of the same period last year (3.05pct), and the management expense rate (including R & D) is 7.95%, which is basically slightly lower than that of last year. During this period, the overall expense rate decreased 3.16pct. (5) benefiting from the state's incentive policy for the software industry, the company received a VAT rebate of 64.66 million yuan for the sale of embedded software products in 2020, which played a positive role in improving the company's performance.

The operating indicators are improving, and the quality of business is steadily improving: (1) the net cash flow generated by operating activities in 2020 is 790 million yuan, an increase of 87.78% over the same period last year, mainly due to the increase in payment and tax refund received in the current period compared with the same period last year. (2) benefiting from the increase in gross profit margin and the decline in the rate of expenses during the period, the company's net profit rate in 2020 was 11.24%, a substantial increase in 4.39pct compared with the same period last year, and has returned to a historically high level; (3) the asset-liability ratio in 2020 is 51.92%, which is in a reasonable range, and the financial structure is healthy; (4) the weighted average return on net assets has rebounded to 16.46% compared with the same period last year, an increase of 8.20pct compared with the same period last year, and the overall profitability has been significantly repaired.

New and executed orders continue to grow. By the end of 2020, the company's valid orders being executed were 6.71 billion yuan (5.943 billion yuan in 2019), an increase of 12.9% over the same period last year. Full orders protect the company's continued growth. In addition, it is worth paying attention to the steady improvement of the company's installation and maintenance business, which is more than 40% year-on-year growth in 2020, faster than the growth rate of elevators and escalators, indicating that not only the installation business, but also the maintenance business is steadily improving. Although the maintenance gross profit margin has declined (mainly due to the impact of accounting standards adjustment), the steady growth trend has not changed.

Maintain a highly recommended rating. The profit repair brought about by "economies of scale + pattern improvement" will continue. At present, the elevator industry has shown a trend of differentiation, and the share of head enterprises is becoming more and more central. in addition, the transformation of old residential areas is an important direction to expand domestic demand, and the elevator industry is one of the main beneficiary industries. Opening the growth ceiling is expected to open a new round of industry boom cycle. Benefiting from the company's excellent cost management ability (raw materials + expense side) and significant economies of scale, the 20-year gross profit margin has increased. Looking forward to 2021, infrastructure investment acceleration + industry clearing + real estate stabilization, the industry is expected to continue the boom. At present, the biggest risk in the industry comes from the rising prices of raw materials (mainly steel). Historically, Kangli has been in the forefront of the industry in cost control. It is expected to maintain profitability and highly recommended ratings through cost control and economies of scale in 2021.

Risk tips: intensified competition in the industry, steel price fluctuation risk, real estate growth is not as expected.