[Investment points]
The company released its 2018 semi-annual report. 2018H1 achieved operating income of 182 million yuan, YOY +48.92%; achieved net profit of 22 million yuan to the mother, and YOY +61.78%. In the second quarter alone, the company achieved operating income of 113 million yuan, YOY +56.80%; net profit returned to the mother was 14 million yuan, YOY +46.96%.
The “one core, two wings” product pattern drives the company's performance to rise. Benefiting from the effective boost in downstream demand for commercial lighting, the company's main business grew rapidly during the reporting period. Among them, the core product lighting fixture grew steadily, YOY +25.24%; the LED display and optoelectronic signage business entered the fast track, with YOY +311.04%/216.97% accounting for a further increase in revenue, which became a strong driving factor for the company's performance and effectively consolidated the company's existing product pattern. The company's current order growth mainly comes from branded apparel terminal customers. Orders in the field of branded apparel terminal lighting are expected to increase by 35%-40% in the next three years. The company is expanding horizontally on the basis of consolidating its competitive advantage in the field of store lighting, and orders in the fields of supermarket and hotel lighting are also growing at an accelerated pace, which is conducive to giving full play to the value of the industrial chain and speeding up the construction of a brand ecosystem.
There has been a decline in gross margin, without changing the long-term growth logic. The gross margin of the 18H1 company declined significantly, from YOY -5.30% to 34.31%. Looking at the product segment, the gross margins of lighting equipment and LED displays decreased 3.48% and 6.00%, respectively, which dragged down the overall gross margin, mainly due to the reduction in the unit sales price of these two types of products. The company's expenses were properly managed and controlled. Among them, the sales expenses ratio YOY +0.42% was basically the same as the same period last year, and the management expenses rate was YOY -3.89%. Furthermore, the investment income obtained from financial management affected about 2%, which led to a slight increase of 0.73% in the company's net interest rate. We believe that the decline in short-term gross margin will not affect the company's long-term growth logic. Currently, the company's various businesses are in a period of rapid expansion, and its voice in the face of downstream will gradually increase. Furthermore, as new factories are gradually built and put into operation, it is expected that the future will reduce costs and increase efficiency through information technology transformation. The overall cost ratio is also expected to remain stable as resources are integrated more rapidly, and gross margin improvements can be expected.
The multi-point layout expands the industrial layout and drives performance growth through multiple businesses. The company extended its high-margin business model in the field of store lighting to segments such as supermarkets and hotel lighting, and achieved horizontal expansion within the commercial lighting industry. At the same time, it keenly grasped the rapidly growing demand for urban night travel economic lighting and set up a joint venture to enter the field of engineering lighting to achieve vertical expansion of the industrial landscape. Through years of experience in the commercial lighting industry, the company has strong product development and production capacity. Promoting business outreach to new fields this time is also expected to use external resources to accelerate its development in the field of engineering lighting. The new business and the original advantageous business are expected to make full use of synergies to form an industrial resonance, and the company's performance is expected to enter a rapid upward path.
[Investment advice]
The company's revenue for 2018/2019/2020 is estimated to be 442/594/816 million yuan, net profit of 0.73/1.02/142 million yuan, EPS of 0.68/0.95/1.32 yuan, corresponding to PE21.76/15.65/11.23 times, maintaining the “buy” rating, with a target price of 23.75 yuan.
[Risk Reminder]
rising prices of raw materials;
The commercial license industry is declining;
Branded apparel customers fell short of expectations when opening stores.