Events:

In 2020, the company achieved an operating income of 1.516 billion yuan, an increase of 13.09% over the same period last year, and a net profit of 232 million yuan, down 1.31% from the same period last year. The company intends to pay a cash dividend of 1.30 yuan (including tax) to all shareholders for every 10 shares. In the first quarter of 2021, the company achieved operating income of 275 million yuan, down 12.45% from the same period last year, and net profit of 29 million yuan, down 64.46% from the same period last year.

Main points of investment:

The performance was lower than expected and the operating cash flow increased significantly. In 2020, the company achieved operating income of 1.516 billion yuan, an increase of 13.09% over the same period last year, mainly due to the rapid growth of the company's electric power sector, new energy sector and military industry plate; the net profit was 232 million yuan, down 1.31% from the same period last year. The net cash flow generated by business activities was 333 million yuan, an increase of 39.36% over the same period last year, mainly due to the increase in the amount of non-cash settlement of the company during the reporting period, and the decrease in the amount of income tax and value-added tax, as well as the margin of bills and financial leases paid compared with the same period last year. The company intends to pay a cash dividend of 1.30 yuan (including tax) to all shareholders for every 10 shares. In the first quarter of 2021, the company achieved operating income of 275 million yuan, down 12.45% from the same period last year, and net profit of 29 million yuan, down 64.46% from the same period last year.

Military business orders made a breakthrough, and the revenue of the new energy sector grew rapidly. In 2020, the company's military sector achieved business income of 153 million yuan, an increase of 9.60% over the same period last year. Starwave Communications, a subsidiary, has achieved R & D and finalization of a number of military communication product models with years of follow-up R & D and accumulation in many military communication equipment fields, and individual key model products have obtained batch production orders, laying the foundation for the company's sustainable profits in the reporting period and in the future. At the same time, the parent company and subsidiary Hanpu Electric Power, relying on their advantages in technology precipitation, market accumulation and product business structure, seized the opportunity of power grid automation and intelligent construction to realize the sustainable development of power plate business. During the reporting period, the company's power sector achieved business income of 653 million yuan, an increase of 22.96% over the same period last year. In terms of new energy, the company seized the business opportunity of vigorously building photovoltaic, wind and other new energy power generation projects in China, and realized the improvement of sales of power transformers in the field of new energy power station construction, and the new energy sector achieved business income of 117 million yuan, an increase of 386.87% over the same period last year. In addition, the 100MW wind power project built by Zhongning County Silver change New Energy Co., Ltd. has been officially put into commercial operation.

We will promote R & D upgrading and capacity expansion projects to ensure the technological innovation capability of all sectors. Hanpu Electric Power, a subsidiary of the company, has successfully implemented the "remote technical renovation project with an annual output of 24700 sets of distribution network automation products". It has realized the overall improvement and self-improvement of the technical R & D capability and production guarantee capability of the company's electrical testing equipment products, intelligent distribution products, distribution automation products and complete sets of electric power products. At the same time, with the new R & D building and production plant put into use, the subsidiary Starwave Communications implemented and implemented the "automatic testing system". This "man-machine cooperation" working mode improves the efficiency of product testing and inspection, saves personnel costs, and improves the speed of product production and delivery. In terms of research and development, the parent company stepped up the upgrading and development of partial discharge monitoring products and infrared thermal imaging monitoring products for power equipment such as transformers, GIS, switchgear and cables, and at the same time promoted the promotion and development of big data's analysis business such as partial discharge comprehensive data service platform in an orderly manner. Subsidiary Yinchuan Wolong injected new vitality into the company's rail transit products through the implementation of the "energy-saving traction transformer industrialization project".

Downgrade the profit forecast and maintain the "buy" rating: the company is the leader of power detection and monitoring equipment, and the military electronic information business has entered a stage of rapid development. Considering that the number of contracts signed by the company's power equipment has declined due to the impact of the project cycle, and the adjustment of the product structure may lead to a decline in the company's comprehensive gross profit margin, we carefully reduce the company's profit forecast. It is estimated that the 21-22 year net profit will be 2.84 yuan and 338 million yuan respectively (4.21 yuan and 505 million yuan respectively before the reduction). The 23-year net profit forecast is estimated to be 397 million yuan. The corresponding EPS in 21-23 years is 0.79,0.94,1.10 yuan per share, and the corresponding PE of the current stock price is 15 times, 13 times and 11 times respectively. Considering that the company has long benefited from distribution automation and increased penetration of new energy generation, we maintain a "buy" rating.

Risk hint: the investment progress of distribution automation is not as expected; the implementation progress of the newly signed contract is not as expected.