Net profit for the first three quarters of 2023 increased 6.16% year-on-year, maintaining the “increased holdings” rating, and Shanghai Electromechanical released its three-quarter report. The first three quarters of 2023 achieved revenue of 17.263 billion yuan (yoy +1.95%), net profit of 813 million yuan (yoy +6.16%), net profit of 769 million yuan (yoy +2.11%), deducting net profit of 769 million yuan (yoy +2.11%). Among them, Q3 achieved revenue of 6.367 billion yuan (yoy -20.53%, qoq +0.15%) and net profit of 257 million yuan (yoy -24.45%, q-20.84%). We expect the company to return 0.99/1.19/1.42 yuan to return to parent EPS in 23-25, respectively, and 13/11/9 times the corresponding PE. Comparable companies' average PE value in '23 was 14.5 times. Considering the company's stable market position in the elevator industry, we gave the company 14 times PE in '23, corresponding to the target price of 13.86 yuan, maintaining the “increased holdings” rating.
23Q3 Profitability increased year-on-year, and the expense ratio declined steadily
The company's overall gross margin for the first three quarters of 2023 was 15.63% /yoy-0.29pct, and the overall net profit margin was 7.3% /yoy+0.0pct; the overall gross margin for the 23Q3 single quarter was 15.37% /yoy+0.18pct, and the overall net margin was 6.63% /yoy+0.16pct. In terms of the period expense ratio, in the first three quarters of 23 years, the company's sales expense ratio was 2.88% /yoy-0.29pct; management expense ratio was 3.23% /yoy+0.21pct; financial expense ratio -1.21% /yoy-0.06pct; and R&D expense ratio was 3.03% /yoy+0.05pct. The overall cost rate declined steadily.
Housing completion data are improving to support the new elevator market demand. New elevator products are moving towards the first three quarters of 2023. The completed housing area was clearly repaired under the impetus of guaranteed buildings and guaranteed delivery. According to data from the National Bureau of Statistics, the completed housing area in January-September increased 19.8% year on year, and the decline in newly started area was 1 pct narrower than in January-August, narrowing for three consecutive months. The improved housing completion data is expected to support the new market demand in the short term. The company's R&D focus is gradually shifting to intelligent products. The LNK smart elevator digital solution launched integrates 9 types of digital products. Through the “elevator equipment” + “digital product service” approach, various key projects such as the Shanghai Center have been implemented, and large-scale promotion and implementation has begun in the new elevator and elevator market.
The renovation of old elevators and the installation of elevators in old houses is on the rise. The post-service market is expected to become a significant development direction for the elevator industry. The post-service market is expected to grow in extreme depth in the future. 1) Renovation of old elevators: According to data from the General Administration of Market Regulation, as of the end of 2022, the number of elevators in use in China reached 9.64446 million.
By the end of 2022, the company has manufactured and sold more than 1.2 million elevators, with a market share of about 12.44%. Among them, the number of elevators that have been in operation for more than 15 years is increasing year by year, and the demand for old elevator renovation will be gradually released in the future; 2) Old house renovation: Local governments encourage and support the installation of elevators in old houses as a major livelihood project, and the company provides residents with one-stop elevator installation services throughout the life cycle. In the first half of 2023, the revenue from the installation, renovation and maintenance services of Mitsubishi Elevators in Shanghai accounted for more than 40% of the revenue of the entire elevator business. Among them, the renovation and maintenance business showed an accelerated growth trend.
Risk warning: Real estate recovery fell short of expectations, raw material prices rose more than expected, and the post-elevator service market installation and renovation process fell short of expectations.