1H21 results are in line with expectations
The company announced 1H21 results: revenue of 392 million yuan, YOY -4.43%; Guimu's net profit was 680 million yuan to reverse losses (last year's loss was 40 million yuan); after deducting net profit of 27 million yuan from non-Gwimo, YOY +151.95%.
The performance was in line with expectations. Guimu's net profit increased a lot compared to the same period last year, mainly due to the capital increase and stock expansion of the subsidiary Haiwei Huaxin, and the company lost control over it and confirmed the investment income of 785 million yuan.
The core business is developing steadily, and Haiwei Huaxin is no longer on the same page. 1) Revenue from the company's three major businesses grew in the first half of 2021. Among them, the aviation training business grew the fastest year-on-year, at 25.61%; 2) Hiwei Huaxin introduced Zhengwei Financial Holdings as a strategic investor, and the company's shareholding ratio fell to 33.79% and was no longer consolidated with it. After loss of control, the remaining equity generated profit of 785 million yuan based on fair value, and the investment income increased to 798 million yuan in the same period last year; 3) Hiwei Huaxin continued to lose money until the same period last year, when excluding the impact of Hewei Warwick's revenue in the first half of the year, the company's year-on-year revenue in the first half of the year was excluded. Growth 12.06 % Expense management and overall profitability have improved, and operating cash flow has improved markedly. 1) In the first half of 2021, the company's expenses for the period were 138 million yuan, and the cost rate for the period was 35.26%, a decrease of 5.18 ppt over the same period of the previous year; 2) The management expenses ratio decreased 2.23ppt to 17.39% year on year, improving overall operating efficiency; 3) The gross margin of the aviation engineering and technical service business increased 7.19ppt to 44.24% over the previous year, driving the company's overall profitability to increase by 1.72 ppt to 41.54% year on year; 4) Net cash flow from operating activities in the first half of the year was 120 million yuan, an increase over the previous year 343.16%, a marked improvement in repayment.
Development trends
The “14th Five-Year Plan” core equipment business is expected to grow rapidly, and equity incentives demonstrate management confidence. 1) We believe that the company is the leading MRO for domestic aircraft, and is also an important subsystem supplier in the domestic aviation sector. There is a high degree of certainty that the business will continue to grow during the “14th Five-Year Plan” period. 2) The company used its own capital of 200 million yuan to repurchase shares between February 5 and March 24, 2021, and repurchased a total of 15.93 million shares of the company. 3) A draft equity incentive plan was released on July 13, 2021. It is proposed to grant 15.93 million stock options to the company's directors, senior managers and core cadres, accounting for 2.11% of the company's total share capital. The exercise price is an average price of 12.55 yuan/share for the repurchase of shares. The conditions for exercising power are: the first exercise period: net profit attributable to shareholders of listed companies in 2021 is not less than 740 million yuan; the second exercise period: the cumulative net profit attributable to shareholders of listed companies from 2021 to 2022 is not less than 800 million yuan.
Profit forecasting and valuation
Since the company confirmed large investment income after losing control of the subsidiary Haiwei Huaxin, we raised the net profit forecast for 2021 by 1363% to 839 million yuan, keeping the 2022 profit forecast unchanged. The current stock price corresponds to 2021/2022 2.7x/2.7x P/B. Due to changes in market preferences, the overall valuation of the industry has risen. We raised the company's target price by 55.6% to 20 yuan, corresponding to 3.5x/3.4x P/B in 2021/2022, maintaining a neutral rating, with potential upside of 28%.
risks
Delivery of products and orders fell short of expectations, and the prices of financial products held fluctuated.