Event: the company released its quarterly report for 2021. During the reporting period, the company achieved revenue of 188 million yuan, an increase of 58.52% over the same period last year, and a net profit of 31 million yuan, an increase of 42.76%, with a net asset per share of 10.04 yuan, an increase of 17.02% over the same period last year. The asset-liability ratio was 36.94%, an increase of 40.24% over the same period last year, and the company's first-quarter results were in line with expectations.

Gross profit margin fell slightly, cash flow improved significantly, and the company's first-quarter results were in line with expectations. 2021Q1 gross profit margin was 28.63%, down 4.94 pct from the same period last year. We expect it to be due to fluctuations in raw material prices and an increase in the proportion of gasoline engine business with slightly lower gross margin. Inventory is 185 million yuan, an increase of 40.25% over the previous year, due to increased procurement of raw materials. The net cash flow of operating activities was 39 million yuan, an increase of 223.11% over the same period last year, which was due to the increase in sales rebates and discounted bills of exchange, while the management expenses were 6.41 million, an increase of 122.19% over the same period last year, due to the increase in consulting service fees. Sales expenses were 11.11 million, an increase of 55.10% over the same period last year, due to the increase in installation and after-sales service expenses, and R & D expenses were 9.72 million, an increase of 36.81% over the same period last year. With the full implementation of the national six-stage standard for heavy diesel vehicles in July 2021 and the introduction of the future off-road four-stage standard, the vehicle value of the exhaust gas treatment system is expected to increase significantly, the company's diesel engine country VI and gasoline engine country VI post-processing products gradually improve, especially gasoline engine country VI post-processing product sales revenue increased significantly compared with the same period last year.

Heavy firewood customers have made a breakthrough, the whole system supply of light firewood has increased, and the business volume of gasoline engines has doubled. The company has the integration capability of the whole industry chain in the tail gas post-treatment industry. compared with foreign suppliers, the company's tail gas post-treatment products have the advantages of high performance-to-price ratio and fast service response. The company's existing cooperative customers in automobile national 6, non-road mobile machinery, shipping and other fields not only cover the five original customers such as Quan Chai Power, Yunnei Power, Foton Automobile, etc., but also opened up well-known enterprises in Dongfeng Automobile, Sinotruk, Sany, Jianghuai Automobile, Jiangxi Isuzu, Wulingliuji, Dongfeng well-off and other industries, and the heavy wood project has achieved major breakthroughs in the leading customers. The supply volume of the whole system of No. 6 light diesel has gradually increased, and the business volume of No. 6 gasoline engine has doubled. With the substantial increase of the company's customer base, the expandable market space will be greatly increased in the future.

Acquire high-quality assets to improve the technical layout, turn on automobile exhaust and deal with overseas markets. The company announced in March 2001 that it intends to acquire VT Faulquemont assets of Continental Group, Germany. Continental Group is one of the top 500 enterprises in the world. Since its diesel afterprocessing business and technology industry leader, VT Faulquemont was founded in 2003, it has been committed to the research and development of SCR urea pump and injection system. After the completion of the merger and acquisition, the company will have mechanical and electronically controlled injection system, and the product expansibility will be broader, which can make the company's product line richer. The overall competitive advantage of the business chain is more obvious. At the same time, VT Faulquemont's customers cover Europe, Asia, North America and other places. After the merger, the company can undertake the original foreign customers and markets and open up the overseas exhaust gas post-treatment market space.

Profit forecast and investment advice: we expect the company's net profit in 2021 to 2023 to be 2.03,3.54 and 477 million yuan respectively, an increase of 61.9%, 74.5% and 34.6% respectively over the same period last year, corresponding to EPS of 2.54,4.43 and 5.96 yuan per share. The current stock price corresponds to 30.7,17.6,13.1 times of PE, maintaining the "buy" rating.

Risk hint: the progress of the promotion of the sixth national standard is not as expected, the car sales have dropped sharply, and the raw materials have fluctuated sharply.