Eddie Precision 2020 and 1Q21 performance are in line with our expectations.
Eddie Precision announced its results: revenue of 2.26 billion yuan in 2020, an increase of 56.4% over the same period last year, and net profit of 520 million yuan, corresponding to 0.86 yuan per share, an increase of 50.8% over the same period last year. 1Q21's revenue was 895 million yuan, an increase of 134.2% over the same period last year, and its net profit was 196 million yuan, an increase of 127.9% over the same period last year, which is in line with our expectations.
The demand for construction machinery is exuberant, and the main business is high growth. In 2020, the sales volume of China's excavator industry increased by 39% to 328000 units compared with the same period last year, a record high. Downstream construction demand is full in the first quarter of this year, with industry sales of 127000 units from January to March, an increase of 85 per cent over the same period last year. In 2020, the company's crushing hammer business income was 1.28 billion yuan (+ 26%), sales volume was 34000 (+ 26%), and hydraulic parts income was 940 million yuan (+ 130.6%), of which pump and valve sales increased by more than 30%, and motor sales reached 100000.
The price of raw materials has gone up, and the gross profit margin is under pressure. Due to the emergence of economies of scale and product structure optimization, the company's 1~3Q20 gross profit margin increased by 1.2ppt to 43.7% year-on-year, of which 3Q20 gross profit margin increased 3.6ppt to 44.4% year-on-year. 4Q20's gross margin fell to 33.2% month-on-month / year-on-year to 33.2%. The gross margin of 1Q21 company was 36.8%, which was lower than the previous month.
1Q20 broken hammer gross interest rate decreased, the core is the impact of the increase in the price of raw materials, in addition, there is also a slight reduction in terminal prices.
The operating efficiency has improved and the net profit margin has been basically stable. In 2020, the company's sales / management / financial expense rates were year-on-year-1.7 0.8ppt, respectively, with a net profit margin of-0.7 and 0.6 ppt, respectively, and a net profit margin of 22.9% compared with the same period last year.
The rate of sales and management expenses of 1Q21 Company is still declining compared with the same period last year, showing better operating efficiency.
The cash flow of business activities is healthy as a whole. In 2020, the net cash flow of the company's operating activities was 340 million yuan, an increase of 73% over the same period last year. The company announced an annual cash dividend of 0.18 yuan per share, with a dividend ratio of 21%.
Development trend
Orders are full, and the production capacity of hydraulic parts is expanding. At present, the company has a full production schedule, and the company is actively expanding the production capacity of high-end hydraulic parts for walking motors and non-excavators. From July to August this year, the company expects the production capacity of 60,000 tons of castings to be put into production; in September, the company expects to start production at the walking motor plant, with the target of 80-1 million sets of annual shipments in the next 3-5 years. In the trenchless field, the company has opened import substitution in the fields of road machinery, aerial working platforms, rotary drilling rigs and so on.
Domestic replacement of hydraulic parts is the trend of the times. We believe that hydraulic pump valves, motors and other products will continue the import substitution process of Chinese hydraulic parts enterprises in the fields of hydraulic crushing hammers and hydraulic cylinders, and the long-term growth trend of domestic leaders of hydraulic parts is expected.
Profit forecast and valuation
We keep the company's net profit forecast for 2021 swap unchanged for 22 years. Under the current stock price, the company has a reasonable valuation with a dynamic price-to-earnings ratio of 47xmax 35x for 2021Universe 22, respectively. We maintain the company's "outperform industry" rating, and taking into account the downside of the comparable company's valuation center, we reduce the company's target price by 17% to 70.5 yuan. corresponding to the dynamic price-to-earnings ratio of 55xamp 41x for 2021max 22, there is 17.6% upside space compared to the current stock price.
Risk
The demand of the industry is lower than expected, and the volume of new products is not as expected.