Key points of investment
The company announced results for the first half of 2021: revenue increased 47.6% year over year to HK$594 million, gross profit increased 51.3% year over year to HK$170 million, gross margin increased 0.7 pct to 28.6% year over year; operating profit increased 118.9% year over year to HK$70.49 million, and net profit of the mother increased 209.8% year over year to HK$26.29 million. Basic earnings per share were HK0.94 cents.
Our review is as follows:
EMPC integration brings new business growth points. Revenue increased 47.6% year over year, 1) PC component revenue was +26.5% /++HK$393 million to HK$445 million; 2) New garden and decoration businesses contributed HK$64 million in revenue.
The growth rate of PC component production fell slightly short of expectations. Three new PC plants were put into operation in the first half of the year (Dengfeng in Henan, Qijiang in Chongqing, and Huidong in Guangdong). The 17 directly-operated factories that have already been put into operation have a total design capacity of 1.13 million square meters. PC component production increased 24.2% year-on-year to 154,600 cubic meters. New production capacity led to an increase in production, and production at the original main plants (Nanjing, Changsha, and Hefei plants) declined.
The unit price of PCs measured in RMB has declined. The unit price of PC components is 2,878 HKD/square meter, yoy +2%. If measured in RMB, the unit price of PC components declined slightly year-on-year.
There are plenty of new orders. The ratio of new PC contracts signed in the first half of the year soared by about 369.5% to 1,546 billion yuan, of which the amount of contracts signed with third parties was 1,187 million yuan, with a reserve of 549,000 square meters for on-hand PC orders.
There has been an increase in account periods. Compared to 2020, 21H1 trade accounts receivable turnover days increased by 26 days to 353 days, and trade accounts payable turnover days increased 18 days to 232 days.
Company outlook:
With the completion of the EMPC layout, it will grow rapidly this year and next two years.
The company will focus on expanding the expansion of third-party customers for PC components, smart gardens and smart decorations, and establishing strategic partnerships.
In terms of production capacity layout, the company has completed its layout in Henan Province. The next step is to continue extensive collaborative exploration, relying on the influence of Jianye Group and the Greater Central Plains Strategy.
Our view: In a carbon-neutral context, prefabricated buildings have great potential. The construction industry is the main source of carbon emissions, accounting for 22% of the country's carbon emissions, mainly from the heating/cooling of residents and industries. Prefabricated buildings have the advantages of low carbon, energy saving and environmental protection. Prefabricated buildings play an important role in promoting the development of low-energy buildings and effectively reducing the energy consumption of buildings. Prefabricated buildings can save 20% of energy. The prefabricated construction industry has great potential.
The company is building a new business model covering the entire industry chain, using assembly methods to achieve comprehensive upgrading of quality, construction schedule and cost in terms of construction, decoration and gardening. It serves the entire life cycle of prefabricated buildings, and has a large space for new business. Investors are advised to pay attention.
Risk warning: Policy impetus falls short of expectations, raw material prices fluctuate, and market demand falls short of expectations.