1H22 performance is lower than we expected.
The company announced 1H22 results: revenue was 980 million yuan, down 20.7% from the same period last year; net profit from home was 48 million yuan, down 28.1% from the same period last year, lower than we expected, mainly due to relatively low demand for rail transportation; in a single quarter, 2Q22 realized revenue of 575 million yuan, down 24.5% from the same period last year. The net profit returned to the mother was 28 million yuan, down 19.2% from the same period last year.
Pan-semiconductor manufacturing business has grown steadily and its profitability has improved. 1H22's rail transit business income was 700 million yuan, down 35.4% from the same period last year, and delivery was affected under the epidemic. Pan-semiconductor manufacturing business income was 186 million yuan, an increase of 24.2% over the same period last year, and digital intelligence business income was 92 million yuan. 1H22's comprehensive gross profit margin increased by 1.2ppt to 34.5% compared with the same period last year. From a business point of view, the gross profit margin of the rail transit business in the first half of the year increased by 0.2ppt to 32.4% compared with the same period last year; thanks to economies of scale, product structure upgrading and yield improvement, the gross profit margin of the semiconductor business increased steadily, and the gross profit margin increased by 1.4ppt to 43.1% compared with the same period last year.
The expense rate has gone up and the net interest rate has gone down. The rate of sales, management and R & D expenses of 1H22 increased 0.4/2/2.4ppt compared with the same period last year, while the net profit margin decreased by 0.5ppt to 4.9% compared with the same period last year. The net cash outflow from 1H22's operating activities was 56 million yuan, 89 million yuan less than the same period last year.
Trend of development
The scale of rail transit business has shrunk, and the epidemic affects short-term demand. The revenue of the 1H22 rail transit signal system and the automatic ticket sales and inspection system respectively reached 611 million yuan, down 34.0% and 43.5% compared with the same period last year. Affected by the epidemic in the first half of the year, the bidding and delivery time of urban rail projects have been delayed, affecting short-term performance.
The product structure of semiconductor business continues to be optimized, and the development situation continues to improve. In the semiconductor business structure, the share of revenue from polishing wafers of more valuable products continues to grow, rising to 71.7 per cent of 1H22 from 4 per cent in 2017. The company's semiconductor business is becoming more and more competitive. according to the semi-annual table, the company's diodes and transistor monocrystalline silicon wafers have a market share of 10%, of which monocrystalline silicon for TVS diodes has a 60% market share. We believe that with the promotion of polishing wafer technical transformation project and the release of scale effect, the product profit margin will be further improved, and the long-term development situation of semiconductor business will be better.
Profit forecast and valuation
Considering the adverse impact of the epidemic on rail transit business, we downgrade the 2022 EPS forecast for 2023 by 16% to 0.34 RMB 0.39 yuan. The company's current share price corresponds to 2022 23.4x/20.4x 2023.
Taking into account the decline in profitability and the good development prospects of semiconductors, we lowered our target price by 6% to 8.66 yuan, corresponding to 2022 25x/22x 2023, which has 8% upside space and maintains an industry rating that outperforms.
Risk.
The bidding of rail transit business is not as expected; the volume of semiconductor business is not as expected.