Revenue rose steadily in '20. The company's performance is expected to grow rapidly in '21. The annual report was released on March 18. 2020 achieved revenue of 23.394 billion yuan, +4.96% over the same period last year (after restatement), and achieved net profit of 1,130 billion yuan, 0.00% (after restatement), after deduction of 1,065 million yuan after deduction, +6.21% year on year (after restatement). The company's performance is basically in line with our expectations. Looking at the medium to long term, the domestic elevator market is running smoothly, and installing elevators in old neighborhoods is expected to contribute some incremental demand. After-market service revenue may be a new growth point. The company's elevator business has stability and long-term growth, and at the same time, the prospects for new industrial layout are bright. EPS is expected to be 1.16, 1.23, and 1.31 yuan from 21 to 23, maintaining the “increase in holdings” rating.
Elevator sales grew steadily, 20-year gross margin stabilized over the previous year, and net operating cash flow increased significantly in the company's annual elevator sales of 93,699 units, +5.49% over the same period last year. The elevator business, printing and packaging business, hydraulic machinery business, and other welding materials businesses achieved revenue of 22.250 billion yuan, 295 million yuan, 248 million yuan, 235 million yuan, and 185 million yuan respectively, +5.89%, +14.12%, +12.02%, and -6.69%, respectively; gross margins were 16.98%, 25.63%, 13.15%, 29.65%, 18.49%, +0.59pct, +4.75pct, -0.48pct, -0.47pct, -0.47pct, year-on-year , +0.49 pct. The overall cost rate in 2020 was -0.43 pct to 8.57% year on year. Among them, the sales, management, R&D, and financial expenses rates were 2.78%, 3.27%, 3.38%, and -0.86%, respectively, and -0.48pct, -0.14pct, +0.01pct, +0.0.17pct. Net operating cash flow for the year was 1,096 million yuan, +419.55%/+885 million yuan over the same period last year.
Demand for the renovation of old elevators and the installation of elevators in old houses grew rapidly, and the company's service revenue increased steadily 1) Old elevator renovation: At the end of 2020, there were nearly 8 million elevators in use in China, and the number of old elevators that had been in operation for more than 15 years was increasing year by year; the number of old elevators renovated by the company in 2020 exceeded 6,000. According to the annual report, an increase of more than 30% is expected in '21. 2) Installing elevators: Many local governments encourage and support the installation of elevators in old houses as a major livelihood project. The company actively explored and launched a “one-stop elevator installation service”. The company completed installing more than 3,000 elevators in old houses in 20 years. According to annual reports, an increase of more than 30% is expected in 21. 3) Branches in many places have been included in the list of pilot enterprises for on-demand elevator maintenance. The on-demand maintenance model is expected to improve maintenance efficiency and increase the profit level of maintenance business. In 2020, the company's revenue from elevator installation, renovation and maintenance services exceeded 7 billion yuan, and the profit level continues to rise.
Leading local elevator manufacturers with steady demand and a diversified layout maintain a “increase in holdings” rating. We believe that under positive factors such as the renovation of old neighborhoods, strong investment in infrastructure such as subways, and the release of demand for renewal and renovation of old elevators, combined with service-oriented strategic transformation, the company's elevator business is expected to achieve long-term steady development. We slightly raised our revenue forecast. We expect the company to achieve net profit of 11.8 (previous value 11.6), 12.6 (previous value 12.2), and 1.34 billion yuan respectively from 2021 to 2023. The corresponding PE was 16.4, 15.5, and 14.5x. The average PE of comparable companies in the elevator industry in 2021 (Wind's consistent forecast) was 16 times. Considering that the company is a local elevator leader, its operating stability and long-term growth are superior to the industry, the company was given a reasonable PE of 18 times in 2021, with a corresponding target price of 20.88 (previous value 20.52).
Risk warning: The growth rate of real estate investment fell short of expectations; the process of renovating old neighborhoods and installing elevators fell short of expectations; promotion and layout of new industries and products fell short of expectations; raw material prices rose more than expected.