Summary of events: the company released the first quarterly report of 2021, Q1 realized revenue of 188 million yuan, an increase of 58.52% over the same period last year, and the net profit of its mother was 31 million yuan (deducting 23 million yuan), an increase of 42.76% over the same period last year (deducting 22.03% of non-year-on-year growth). Basic earnings per share is 0.39 yuan. ROE (weighted) was 3.95%, down 0.4% from the same period last year; the current net value was 39 million yuan, a sharp increase of 223.11% over the same period last year.

The cash flow of Q1 has improved significantly, and the volume of country 6 products has begun to increase.

Driven by the reduction of the impact of the epidemic and the gradual conversion of national six products, the company's Q1 performance has achieved considerable growth. During the reporting period, the company's expense rate was 14.95%, a slight increase of 0.57% over the same period last year, while the gross profit margin and net profit margin decreased by about 5% and 2% to 28.63% and 16.36%, respectively.

We judge that the cost and expense rate of the sixth national gasoline engine is relatively high, and the substantial growth of its Q1 sales has led to a slight decline in the overall profitability of the company. The asset-liability ratio of Q1 company is 36.94%, which is maintained at a relatively low level; the cash-to-cash ratio is 94.33%, the net cash / net income is 165.89%, and the cash flow is good.

With outstanding technical strength and a big breakthrough in the sixth national market, it is expected to increase the market share in the hundreds of billions of national sixth market. During the reporting period, the company's R & D expenditure rate was 5.23%, which was maintained at a high level. R & D strength is the company's core competitiveness, the company has 12 core technologies, has authorized 135 patents, mastered more than 40 types of catalyst formulation technology (technical secrets). During the reporting period, the company achieved a major breakthrough in the leading customers of the heavy diesel engine project, the supply of light diesel engines gradually increased, and the business volume of gasoline engines doubled, indicating that the company's technical level is at the forefront of the industry. The sixth national standard is gradually promoted, and the market size is expected to be more than doubled to the level of hundreds of billions of dollars, and the company is expected to usher in a double improvement in market share and sales level.

Profit Forecast and Investment suggestion: it is estimated that the company's EPS in 2021-2023 is 4.55 yuan, corresponding to PE35/23/17 times. The implementation of the sixth National Committee has brought certainty to the market, and the company's technological advantage is expected to further increase its market share and give it a "buy" investment rating.

Risk Tip: the risk that the company's sixth national market expansion is not as expected.