Key points of investment
Results for the first half of 2021 were lower than expected and are expected to be stable month-on-month in the second half of the year:
The company achieved revenue of 1.16 billion yuan (same below), an increase of 42.53% over 2020 and an increase of 13.92% over 2019; gross profit of 380 million yuan, an increase of 57.15% over 2020 and an increase of 47.45% over 2019; Guimu's net profit was 152 million yuan, an increase of 142.08% over 2020 and an increase of 194.68% over 2019. On a quarterly basis, Q1 revenue was 60 million, Q2 revenue was 570 million; Q1 net profit was 86 million, and Q2 fell to 65 million.
Core shortages and raw material issues seriously affected second-quarter performance:
Chip shortages and rising raw material prices caused automakers' performance in the first half of this year to fall short of expectations. As a result, although Xinbang Q1 sales were good, Q2 sales faced challenges in various areas such as supply chain, order execution progress, and logistics. Furthermore, due to the rise in raw material prices and the increase in logistics and transportation time, the company's inventory level increased year-on-year in the medium term, which took up cash flow.
Gross margin declined month-on-month, and expense ratio increased month-on-month:
The sales expense ratio in the first half of the year was 3.1%, up 0.9 pct from the previous month; the management expense ratio was 14.5%, up 4.1 pct from the previous month; gross margin was 32.7%, down 2.4 pct from the previous month. The decline in gross margin was mainly constrained by factors such as the Mexican plant and freight; the increase in the management cost ratio was mainly due to the increase in domestic workers and the fact that efficiency and number of employees did not match optimally during production preparation in Mexico. Gross margin is expected to be stable month-on-month in the second half of the year. Assuming that the Mexican factory achieves break-even by the end of the year, it will be of positive help to raise net interest rates.
There are sufficient orders in hand, and future performance is expected to be good:
As of the mid-term, the company's cumulative orders were 10.4 billion yuan, of which 507 million yuan will be ordered for electric vehicles in the next five years. Currently, the main factors affecting the development of the automobile industry are still logistics and supply chain issues brought about by the epidemic. Among them, the chip problem is still a major obstacle in the short term, but demand is strong. It is expected that with the gradual recovery of supply chains and global logistics, the automobile market is expected to usher in a strong recovery.
Lower the target price to HK$4.8 to maintain the “buy” rating:
Since the performance of the first half of the year fell short of expectations and the factors affecting the industry still exist, we lowered the company's 2021-2023 EPS forecast to $0.31/0.40/$0.53, respectively, and lowered the target price to HK$4.8, equivalent to 10 times that of PE in 2022. There is room for a 42% increase from the current price to maintain the buying rating.