1H22 performance is in line with our expectations
Shenzhen Science and Technology announced its mid-2022 report: 1H22 achieved operating income of 7.552 billion yuan, down 5.07% from the same period last year; realized net profit of 456 million yuan, up 66.86% from the same period last year; and deducted 229 million yuan from non-net profit, an increase of 233.30% over the same period last year, basically in line with our previous expectations. According to the company's announcement, the rapid increase in net profit was mainly due to the fact that the company received a dividend of 106 million yuan from the participating company Dongguan Industrial Park, while divesting the loss-making consumer electronics manufacturing business (1H21 lost 72.69 million yuan, contributing 16.09 million yuan to net profit before the divestiture in April 2022). In the single quarter of 2Q22, the company achieved a revenue of 3.901 billion yuan, down 5.51% from the same period last year, and a net profit of 213 million yuan, an increase of 192.5% over the same period last year.
In terms of business, the revenue of the storage semiconductor business 1H22 reached 1.529 billion yuan, up 9.18% from the same period last year; the revenue from the metering intelligent terminal was 639 million yuan, down 24.75% from the same period last year; and the operating revenue of the high-end manufacturing business was 5.309 billion yuan, down 5.20% from the same period last year.
Trend of development
Storage semiconductor closed test capacity expanded smoothly and became the main driver of revenue growth. The company actively expanded the closed testing capacity of storage semiconductors. Peyton in Hefei was put into production in December 2021 and passed the mass production audit of existing customer packaging products in 1H22. By May 2022, it has formed a package testing capacity of 15,000 memory wafers. In order to support 5G technology and realize high-grade and high-capacity memory chip packaging, the company plans to build Bumping project, and the construction of purification room and the procurement of front-line equipment are being carried out at the same time; at the same time, the company plans to further introduce new customers in the second half of the year. We believe that with the smooth expansion and commissioning of the company's closed test capacity, the company is expected to cooperate with the business development of Hefei Changxin and other domestic memory chip manufacturers to achieve the rapid growth of closed test business.
With the focus of high-end manufacturing business, metrological intelligent terminal business has made a breakthrough in China. In terms of high-end manufacturing, the company completed the divestiture of its consumer electronics manufacturing business in April 2022, and orders for manufacturing businesses such as medical products, printers and intelligent lawn mowing robots continued to expand, but affected by the international situation and epidemic situation, demand for manufacturing orders in some areas has slowed down. In terms of measurement intelligent terminal, the company's smart meter business has made a breakthrough in the domestic market. Shenzhen Science and Technology Chengdu, which is mainly engaged in measurement intelligent terminal business, won the bid for Class A single-phase smart meter project for the first time in the 30th batch of State Grid 2022 watt-hour meter project in June 2022. At the same time, the company won the bid smart meter project in southern Europe and signed the distribution network and metering system engineering general contract project with Tajikistan jointly with Pinggao Group. We believe that as the epidemic alleviates, high-end manufacturing demand is expected to pick up, while there are sufficient orders for smart terminals to support long-term performance growth.
Profit forecast and valuation
We keep the net profit of 2022max at 862 million yuan / 1.091 billion yuan in 2023. The current share price corresponds to 23.4 times 2022 earnings and 18.5 times 2023 earnings. Maintain an outperform industry rating and a list price of 14.0 yuan, corresponding to 25.3 times 2022 price-to-earnings ratio and 20.0 times 2023 price-to-earnings ratio, which has 9% upward space compared with the current stock price.
Risk
The localization of memory chips is not as expected, and the market demand of memory chips is not as expected.