2Q21's performance is in line with our expectations.
Citic Haizhi announced its results for the first half of 2021: operating income was 760 million yuan, up 9.5% from the same period last year; net profit belonging to the parent company was 120 million yuan, up 69.1% from the same period last year; 2Q21 business income was up 13.6% from the same period last year, 27.4% from the previous month, and net profit was 90 million yuan, up 79.4% from the same period last year and 158.2% from the previous year. The company's performance is basically in line with our expectations.
Business income growth diverged in the first half of the year. 1) the revenue of the navigation and transportation business 1H21 reached 740 million yuan, up 12.0% from the same period last year. On the one hand, the continuous rise in crude oil prices has increased the number of contract aircraft and flight operations in the offshore oil business, and the 1H21 revenue of the parent company has increased by 9.2% to 610 million yuan over the same period last year. On the other hand, the company's aviation forest protection, sea police escrow and other navigation business maintained good development, and the 1H21 revenue of its subsidiary Hazhong Airlines increased by 19.2% to 130 million yuan compared with the same period last year. 2) the revenue of navigation maintenance business reached 12.51 million yuan, an increase of 23.2% over the same period last year. 3) Financial leasing revenue decreased 92.7% to 1.27 million yuan over the same period last year, mainly due to the adjustment of the company's strategic development direction.
Profitability improved significantly compared with the same period last year. The company's 1H21 net profit margin increased by 5.6% year-on-year to 15.9%, mainly due to 1) gross profit margin increased 7.6ppt to 28.7% year-on-year, of which navigation and transportation business increased 8.2ppt to 29.9%. 2) the financial expense rate fell to 2.6% year-on-year, mainly due to a year-on-year decline in net debt of 48.5% to 480 million yuan, while 1H21 recorded an exchange gain (1H20 is an exchange loss). 3) the effective income tax rate was reduced from 16ppt to 16% compared with the same period last year, mainly because the parent company began to pay tax at the preferential tax rate (15%) for high-tech enterprises.
Development trend
We expect the company's year-on-year performance in the second half of the year to benefit from the high oil price environment and subsidy stagnation.
The average price of 1H21 Brent crude oil is 65 US dollars per barrel, up 53% from the same period last year and 47% from the previous year. According to the forecast of CICC Dazong Group, the average price of 3Q21 and 4Q21 Brent crude oil is 75 US dollars per barrel and 72 US dollars per barrel. We expect the company's offshore oil business to continue to benefit from the high oil price environment in the second half of the year. At the same time, the company received a total of 43.7 million yuan in 2021 navigation subsidy and civil aviation special fund subsidy in July (and received in the first half of 2020), which we believe will also be good for its performance in the second half of the year.
Profit forecast and valuation
Considering that the parent company has obtained the recognition of high-tech enterprises and the income tax rate has been reduced, we have raised the company's profits by 14% and 14% to 280 million yuan and 310 million yuan in 2021 and 2022. The current stock price corresponds to the 2021 / 2022 16.9 times / 15.4 times earnings ratio (corresponding to the 2022 price-earnings ratio 16.1 times) to raise the target price by 14% to 7.90 yuan, corresponding to 16.9 times 2021 price-to-earnings ratio, which is basically the same as the current stock price and maintains a neutral rating.
Risk
Offshore oil demand was lower than expected; the renminbi depreciated sharply against the dollar; and subsidies fell sharply.