The performance in 2020 is lower than we expected.
The company announced its 2020 and 1Q21 results: revenue in 2020 was 1.22 billion yuan, down 23.8% from the same period last year; the net profit was-470 million yuan, mainly due to the company's impairment of 413 million yuan of goodwill, resulting in lower-than-expected results. 1Q21's revenue increased by 45.0% year-on-year to 283 million yuan, while net profit from home increased by 133.19% year-on-year to 8.72 million yuan.
The comprehensive gross profit margin was basically the same as the same period last year, and the expense rate rose sharply during the period. The company's gross profit margin increased by 0.1ppt to 33.3% in 2020 compared with the same period last year. From a product point of view, the gross profit margin of information and safety testing decreased by 6.29ppt to 36.78%; ground electrical equipment and vehicle electrical equipment increased by 4.88ppt/2.00ppt to 46.57% and 26.02% respectively compared with the same period last year. During 2020, the expense rate increased by 5.2 ppt compared with the same period last year, of which the sales / management / R & D / financial expense rate increased to 14.4% 1.4/1.6/1.7/0.5ppt, 10.8%, 5.2%, 5.5%, respectively, compared with the same period last year.
A large amount of impairment loss of goodwill was included, and the net profit margin decreased significantly. Affected by the impact of the epidemic and the intensification of market competition, in 2020, the company fully deducted 413 million yuan in goodwill from its wholly-owned subsidiaries Qihui Electronics and Guangzhou Dinghan, including 250 million yuan from Qihui Electronics and 163 million yuan from Guangzhou Dinghan, with a net goodwill value of 0. As a result, the company's net interest rate fell by 41.2ppt to-38.5% in 2020 compared with the same period last year. The net inflow of operating cash of the company in 2020 was 46.668 million yuan, which was 60.748 million yuan less than that of the same period last year.
Development trend
State-owned assets have entered a new period of development. On December 28, 2020, Gu Qingwei, the controlling shareholder and real controller, and his concerted actor, Xinyu Dinghan, planned to transfer 10.25% of their shares to Industrial Control Capital. Guangzhou Railway Communication Fund intends to delegate the voting rights corresponding to 9.12% of its shares to Industrial Control Capital and maintain a relationship of concerted action. After the completion of the agreement, Industrial Control Capital will hold 19.37% of the voting rights of the company and will become the controlling shareholder of the company, and the actual controller of the company will be changed to the Guangzhou Municipal people's Government. Recently, the Industrial Control Group (parent company of industrial control capital), together with eight other enterprises, including Jiadu Xintai Technology and Baiyun Electric Appliances, plan to jointly contribute 5 billion yuan to establish Guangzhou Dawan District Rail Transit Industry Investment Group, of which the Industrial Control Group contributed 1.4 billion yuan, accounting for 28%, the highest of the nine companies. We believe that the investment of state-owned assets is expected to empower enterprises to develop in the fields of capital, technology, market and so on.
Profit forecast and valuation
Considering the increase in expense rate, we downgrade the 2021 EPS forecast by 10% to 0.15 yuan, and introduce the 2022 EPS forecast of 0.19 yuan, corresponding to 22% year-on-year growth. The company's current share price corresponds to 2011x / 27.2x Pmax E in 2022. Taking into account lower earnings and lower industry valuations, we have lowered our target price by 22% to RMB 6.01, and there is 18% upside space for 2021max 39x / 32x Pmax E in 2022. Maintain a neutral rating.
Risk
The construction and opening of urban rail is not as expected.
