Key points of investment
Incident: The company announced its 2020 performance report, with operating income of 82 billion yuan, a year-on-year decrease of 34.2%. Net profit attributable to shareholders of listed companies was a loss of 150 million yuan and a profit of 180 million yuan for the same period last year. At the same time, the results forecast for the first quarter of 2021 was announced. Net profit attributable to shareholders of listed companies was 1.6 million yuan to 2.4 million yuan.
Landscape business adjustments, goodwill impairment affected profits: In 2020, the company's landscape business and LED display export business were affected by the pandemic. Revenue fell 34.2%, and the profit side lost money due to impairment of goodwill. The landscape lighting business where the subsidiary Qianbaihui is located entered a period of adjustment compounded by the impact of the epidemic. Revenue and profit declined sharply in 2020, and the company calculated a loss of goodwill of 160 million yuan. On the other hand, the company's LED shows that exports are the main focus. Overseas demand has declined sharply due to the pandemic, but various expenses have not been reduced. At the same time, actively developing the domestic market has increased R&D and sales expenses, leading to a sharp decline in profitability, which has led to poor net profit performance. After the goodwill was eroded, the company had a remaining goodwill of 30 million yuan. The risk was cleared, and the company “went to battle lightly.”
The first quarter's performance reversed losses, and the industry gradually picked up: the company expects profit of 1.6 million yuan to 2.4 million yuan in the first quarter of 2021, a year-on-year decline of about 81% to 71%, but as the impact of the epidemic gradually wanes and LED display orders are sufficient, revenue for the first quarter of 2021 is expected to increase year-on-year, turning profit loss into profit. At present, the domestic LED display market has basically recovered to pre-epidemic levels and has achieved growth. Overseas demand is gradually recovering with the restart of sporting events. The industry entered a recovery trajectory after bottoming out in 2020, and the company, as a downstream terminal manufacturer, will first benefit from the recovery in demand.
Equity incentives mobilize enthusiasm, and fund-raising projects help long-term development: the company announced an employee stock ownership plan on April 7, providing equity incentives for no more than 113 people, unlocked in two phases. According to the performance targets of the unlocking conditions, the company's revenue in 2021 increased by no less than 50% compared to 2020, and revenue in 2022 was not less than 100% compared to 2020. It is expected to fully mobilize the enthusiasm of management and core technical personnel, which also shows the company's determination to achieve growth. Meanwhile, in January of this year, the company went public and raised 205 million yuan in capital. Investment projects and usage plans include: 1) smart network intelligent integration capability enhancement project; 2) Mini LED intelligent manufacturing base construction project; 3) smart light pole system R&D project; 4) supplementary working capital. This fundraising project revolves around the company's core business, expanding the production capacity of the main business and research and development of new technologies, the layout fits the company's long-term development strategy, expands advantageous projects, and expands growth space. We anticipate that the company is expected to gradually escape the negative impact of the epidemic this year and re-enter a recovery development path. The development of new technologies and products such as all-in-one conference machines, Mini/Micro LEDs, and the implementation of fixed increase projects will lay out the company's competitiveness ahead of schedule, and it is expected to embark on the fast track of industry development.
Investment advice: Therefore, we believe that companies will gradually recover from the impact of the pandemic as the industry recovers in the short term and benefit from increased demand in the long term. We forecast earnings per share of -0.23, 0.18 and 0.28 yuan respectively from 2020 to 2022, and returns on net assets of -11.2%, 8.0%, and 10.8%, respectively, maintaining the buy-B recommendation.
Risk warning: The recovery of overseas demand fell short of expectations; the penetration of the mini LED market fell short of expectations; LED displays increased competition to develop the domestic market; the landscape lighting business continued to be affected by macroeconomic policies; and the advancement of intelligent network transformation fell short of expectations.