Net profit in 2020 was higher than our expectations
The company announced its 2020 results: revenue of 964 million yuan, YoY +19.3%; net profit of 32 million yuan, YoY -58.5%; net profit of non-return mother of 30 million yuan, YoY +165.9%.
The company's profit was higher than our expectations, mainly due to the limited decline in the fair value of its Guiyang Bank shares and the transfer of Rongxin Electronics to obtain a one-time investment income of 27 million yuan.
Core equipment and microelectronics businesses are growing rapidly. By business, 1) the aviation engineering technology and service business was limited by the impact of the epidemic, with annual revenue of 384 million yuan, YoY +12.9%, of which the Tianjin maintenance subsidiary turned a profit in 2020, achieving revenue of 111 million yuan and a net profit of 5.3 million yuan; 2) Core equipment R&D, manufacturing and security business revenue of 269 million yuan, YoY +58.7%, mainly due to the completion of multiple batch production projects and a new high volume of engine maintenance; 3) The microelectronics business revenue was 167 million yuan, YoY +87.8%, mainly benefiting the customer group Don't import and solidify, scale up science and equipment products, and release some civilian goods; 4) The aviation training business was hit by the epidemic, with revenue of 40 million yuan, YoY -42.1%.
Aviation training and microelectronics gross margins have declined markedly. 1) The company's comprehensive gross margin in 2020 was 39.5% (excluding taxes and surcharges), a year-on-year decrease of 2.4ppt, mainly affected by the decline in gross margin of the microelectronics and aviation training business. Among them, the aviation training business was seriously affected by the epidemic, and gross margin fell 16.7ppt to 28.3%, but the gross margin of the core equipment R&D, manufacturing and security business increased 2.2 ppt to 51.7% year-on-year in 2020, mainly due to changes in product structure and scale effects.
Sales and management expenses are reduced, and high investment in R&D is maintained. Affected by the epidemic, the company's travel expenses and conference expenses were drastically reduced. At the same time, the company strengthened lean management. The cost rate during 2020 was 32.0%, a year-on-year decrease of 7.5ppt. Among them, sales expenses fell 14.1% year on year, management expenses fell 3.1% year on year, and R&D expenses increased 18.6% year on year. The company revealed that a total of 25 scientific research projects are progressing simultaneously, with the engine electronic control system being developed in a series; participating in the development and manufacture of subsystems for large domestic aircraft; and the self-designed and self-constructed engine test bench completed performance tests, which have already been put into scientific research and testing.
Development trends
The “14th Five-Year Plan” core equipment business is expected to grow rapidly. 1) The company is a leading domestic aircraft MRO. It is also an important subsystem supplier for domestic aviation special equipment. There is a high degree of certainty that the business will continue to grow during the “14th Five-Year Plan” period. 2) The subsidiary company Hiwei Huaxin is an advanced compound semiconductor IDM company in China. The products have been sent samples to well-known domestic 5G communication equipment suppliers for verification. We expect that the increase in production capacity utilization and delivery rate in the future is expected to drive gross margin to continue to rise.
Profit forecasting and valuation
Due to the impact of the pandemic on the company's aviation training business, we lowered our 2021 revenue forecast by 25% to 1.01 billion yuan, but considering factors such as increased comprehensive gross margin and lower cost rates, we kept our 2021 profit forecast unchanged, introducing net profit of 67 million yuan in 2022.
The current stock price corresponds to 2.3x/2.2x 2021/2022 PB. Maintaining a neutral rating and a target price of 12.85 yuan, corresponding to 2.7x/2.7x 2021/2022 PB, there is 19.0% upside.
risks
Delivery of products and orders fell short of expectations, and the prices of financial products held fluctuated.