The company released its 2019 semi-annual report: 1H19 achieved revenue of 2.61 billion yuan, a year-on-year decrease of 11.7%; the net profit returned to the mother was 220 million yuan, an increase of 27.0% over the previous year. Among them, 2Q18 achieved revenue of 1.39 billion yuan in a single quarter, a year-on-year decrease of 17.3%; Guimu's net profit was 140 million yuan, an increase of 29.8% over the previous year. Net cash flow from operating activities was $480 million, an increase of 202.5% over the previous year. It is proposed to distribute a dividend of $2.3 for every 10 shares.
R&D investment increased, and expenses fell during the period. 1H19's sales expenses and financial expenses decreased by 6.3% and 12.2% respectively, and management expenses increased by 2.9%. Among them, R&D investment increased 10.1% year-on-year, mainly in fields such as intelligent engine production lines, general engine products, new energy, etc., to enhance the core competitiveness of the company's main business and actively expand new profit growth points.
The leading position of telecom has been consolidated, and profits have increased significantly. During the reporting period, the company sold 1.4 million units of GM products, of which 460,000 units were sold in China, an increase of 7.4% over the same period last year; achieved sales revenue of 1.12 billion yuan and net profit of 86.977 million yuan. During the company period, management collaboration between the wholly-owned Zizong Shentong Machinery and Dajiang Power was strengthened, consolidating the leading position in the domestic general machinery manufacturing industry. Against the backdrop of factors such as declining prosperity in the motorcycle industry, trade frictions between China and the US, and exchange rate fluctuations, the company strengthened cost control, exchange rate control, etc., increased product restructuring and overseas market expansion, and achieved rapid growth in net profit over the same period last year.
New energy sources are being actively deployed, and the aviation development business is progressing smoothly. Zongshen New Energy Company has completed the layout of products such as “motors, electronic controls, batteries, range extenders, wireless charging, and core component materials” through various methods such as independent research and development and technology introduction. The subsidiary Chongqing Zongshen Hydrogen Energy Power is actively developing core small fuel cell systems and application technology, focusing on developing modular products below 5 Kw, and striving to build a fuel cell R&D and trial production platform of 30 KW or more to create new profit growth points. Zongshen Aviation Development Company, a wholly-owned subsidiary of the company, now has a research and development base for small and medium-sized aerodynamics and mass production capacity for some products. Its main business can cover general aviation and military and civilian drone markets. In the future, the company will continue to step up R&D and market expansion efforts to promote the pace of the company's “military and civilian integration” strategy transformation.
Maintain a “Prudential Recommendation - A” investment rating. We anticipate that the concentration of the motorcycle business will accelerate in the future. The development of the general aviation business is a major trend. The company will actively lay out new energy projects and aviation development business, which will open up new profit growth points. Earnings per share are estimated at $0.38 in '19 and $0.43 in '20. The corresponding PE and PB for '19 are 16.5 and 1.7 respectively, maintaining the “Cautious Recommendation - A” investment rating.
Risk warning: The motorcycle industry fell short of expectations, and the general machinery industry fell short of expectations.
