Revenue is under pressure in the short term. Follow-up attention is being paid to the progress of the modernization/refurbishment/repair and maintenance business
Shanghai Electromechanical released a quarterly report. In Q1 of 2024, revenue of 4.311 billion yuan (yoy -5.01%, qoq -14.76%), net profit to mother was 212 million yuan (yoy -8.08%, qoq +13.75%), deducting non-net profit of 204 million yuan (yoy +0.75%). We expect the company's 2024-2026 EPS to be 1.00, 1.33, and 1.55 yuan respectively. Comparatively, the company's 24-year ifind unanimously expected the average PE value to be 11.9 times. Considering the company's stable market position, it currently leads the number of elevators in the country, providing a solid foundation for post-market development. Subsequent post-market maintenance and other services will become the elevator company's core competitiveness. Therefore, the valuation premium was raised, giving the company 14 times PE in 24 years, and a target price of 14.00 yuan to maintain the “increase” rating.
Gross margin increased year-on-year in Q1 in '24, and expense ratios were steadily lowered
24Q1 achieved revenue of 4.311 billion yuan (yoy -5.01%), gross profit margin of 16.41% (yoy +0.53%), and net profit margin of 7.5% (yoy -0.28%). In terms of the cost ratio for the period, the company's sales expense ratio was 3.55% /yoy-0.08pct, the management expense ratio was 4.72% /yoy+0.39pct, the financial expense ratio was -1.41% /yoy-0.24pct, and the R&D expense ratio was 2.52% /yoy-0.21pct, and the overall cost ratio was steadily lowered. The company's advance payments increased by 12.78% year on year, mainly due to an increase in prepaid purchases from affiliated subsidiaries; notes payable decreased by 39.40% year over year, mainly due to current note maturity payments; cash flow from investment activities decreased by 83.55% year over year, mainly due to the increase in time deposits of three months or more in the current period less than the same period last year.
Policies have been introduced one after another to promote the process of upgrading old elevators and installing elevators in old houses. The State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-in” on March 7, 24, proposing to promote the renovation of old neighborhoods, with the focus on residential elevator renewal. On April 9, 2024, the Ministry of Housing, Urban-Rural Development issued the “Implementation Plan for Promoting the Renewal of Construction and Municipal Infrastructure Equipment”, which focuses on the renewal of old residential elevators and the installation of elevators in existing residences. Continued introduction of policies is expected to drive the pace of upgrading old elevators and installing elevators in old houses. In terms of renewal and renovation, by the end of 2023, Shanghai Electromechanical had manufactured and sold more than 1.2 million elevators. Of these, the number of old elevators that have been in operation for more than 15 years is increasing year by year, and demand for old elevator renovation will be gradually released in the future; in terms of installing old houses, the company can provide one-stop elevator installation services throughout the life cycle.
China's elevator maintenance market space is vast. The company is gradually focusing on self-maintenance and is expected to receive a steady increase in revenue as of December 31, 2023. As of December 31, 2023, the number of elevators owned nationwide is 10.629,800, ranking first in the world.
There is plenty of room for maintenance in the elevator rear market, but previously the entry threshold for the elevator maintenance industry was low. More third party companies that did not meet maintenance requirements participated in market competition, and industry chaos such as “repair instead of insurance” and “false maintenance” occurred. As industry regulations become stricter and elevator OEMs gradually pay more attention to the post-elevator maintenance market, the self-maintenance rate of OEMs is expected to increase to bring a steady increase in maintenance revenue to elevator companies.
Shanghai Electromechanical has a large number of elevators in the country, and its high base corresponds to the broad self-maintenance market.
Risk warning: The price of raw materials has risen, and the post-elevator market process falls short of expectations.