Shanghai Electric's third quarter results are in line with market expectations.
Shanghai Electric announced the third quarter of 2020 results: revenue 29.3 billion yuan, year-on-year + 32%, month-on-month-24%; return to the mother net profit of 820 million yuan, year-on-year + 125%, month-on-month-42%, in line with market expectations. In the first three quarters, the company achieved operating income of 82.5 billion yuan, + 10% year-on-year, and home net profit of 2.35 billion yuan, + 6% year-on-year, reversing the decline in the first half of the year.
The gross profit margin fell seasonally, and the magnification of income led to profit growth. The company achieved a comprehensive gross profit margin of 15.6% in the third quarter, 1.7 percentage points lower than the second quarter and 2.4 percentage points lower than the same period last year, showing that the gross profit margin in the third quarter has been low since 2008. we analyze that the financial and trade services, wind power and other businesses that may result from the company's high gross profit margin are concentrated in the fourth quarter, resulting in a differentiation of gross profit margin between quarters. Although gross profit margin fell year-on-year, revenue rose 32 per cent in the third quarter from a year earlier, driving positive earnings growth.
Trend of development
Electric and wind power replied to the inquiry letter, and the progress of the split was restarted. On September 30 this year, the Shanghai Stock Exchange system showed that the application for the issuance of electric and wind power had been suspended because the financial information in the listing application documents previously submitted by Electric Wind Power had expired. After the Group updated its financial information, the listing application of Electric Wind Power on October 15 showed that it had been inquired, and the spin-off listing plan was restarted. Among them, it is disclosed that the wind power business 1H20 achieved a net profit of 105 million yuan, and as of June 30, the on-hand order was 45.443 billion yuan. We estimate that it is about 1-1.5 gigawatts of wind turbine orders.
Shanghai Jiyou started privatization to promote the integration of the group's business line. The company announced on October 16 that the holding subsidiary of Shanghai Jiyou Mingyu Machinery Technology Co., Ltd. (Hong Kong stock listing code 02345.HK) was privatized by absorption and merger, with a write-off price of HK $1.60 per share at a premium of about 68.4% over the previous closing price, implying a net market ratio of 0.58 times its net assets at the end of 2019.
The company's privatization measures are mainly based on the possible continuing impact of the epidemic in Shanghai Jiyou's fastener business, the aviation industry and the automobile manufacturing industry. we believe that further integration between the various business lines of the group after privatization is expected to improve operational efficiency and achieve joint efforts.
Profit forecast and valuation
Keep profit forecasts for 2020 and 2021 unchanged. The current A-share price corresponds to a price-to-earnings ratio of 19.7 times 2021 / 17.3 times earnings in 2020. The current H share price corresponds to a price-to-earnings ratio of 7.7 times for 2020 / 2021. A shares maintain a neutral rating and a target price of 6.20 yuan, corresponding to 24.0 times 2020 price-to-earnings ratio and 21.1 times 2021 price-to-earnings ratio, which has 21.6% upward space compared with the current stock price. H shares maintain an outperform industry rating and a target price of HK $4.05, corresponding to 13.9 times 2020 price-to-earnings ratio and 12.2 times 2021 price-to-earnings ratio, with 81.6% upside compared to current share prices.
Risk.
The progress of capital operation is not as expected, and the new installation of wind power is not as expected.