\u3000\u3 China Vanke Co.Ltd(000002) 056 Hengdian Group Dmegc Magnetics Co.Ltd(002056) )
Event: Hengdian Group Dmegc Magnetics Co.Ltd(002056) released the annual report of 2021. In 2021, the operating revenue was 12.607 billion yuan, a year-on-year increase of 55.54%, of which 2021q4 operating revenue was 3.599 billion yuan, a year-on-year increase of 38.09% and a month on month increase of 8.54%. In 2021, the net profit attributable to the parent company was 1.120 billion yuan, with a year-on-year increase of 10.54%, of which the net profit attributable to the parent company in 2021q4 was 235 million yuan, with a year-on-year decrease of 33.56% and a month on month decrease of 30.71%. In 2021, the net profit not attributable to the parent company was deducted by 903 million yuan, a year-on-year decrease of 0.84%, of which the net profit not attributable to the parent company was deducted by 145 million yuan in 2021q4, a year-on-year decrease of 48.15% and a month on month decrease of 55.08%.
In the traditional advantageous field of “magnetic material + device industry”, the market share of the company is expected to continue to increase. In the high boom demand industry of “photovoltaic + lithium battery industry”, the company has a precise layout and may continue to increase its performance in the future. 1) Magnetic material industry: in 2021, the company’s magnetic material industry has an annual production capacity of 200000 tons of ferrite pre burned materials, 160000 tons of permanent ferrite, 40000 tons of soft ferrite and 20000 tons of plastic magnet. It is the largest manufacturer of ferrite magnetic materials in China. The company’s magnetic material industry achieved an income of 4.269 billion yuan, an increase of 26.39% year-on-year, further improving the market share and consolidating the leading position in the ferrite magnetic material industry. 2) Device industry: at present, there are 40000 vibrating motors, and the inductance capacity continues to expand. 3) Photovoltaic industry: the company has a capacity of 8GW cells and 3.5gW modules, of which the annual output of 4gw high-efficiency perc single crystal cell project and the annual output of 2gw high-efficiency module project have been put into production. 4) Lithium battery industry: the company has an internal capacity of 2.5gwh lithium battery and continues to cultivate the market segmentation of small power. While continuously promoting the cooperation between key products and medium and high-end customers, the development of overseas market has achieved initial results. The capacity of 148 million high-performance lithium batteries newly put into operation is expected, which also provides a good capacity basis for subsequent high-performance lithium battery projects.
The downstream demand of main products is strong. The growth rate of magnetic materials and devices industry is considerable, and the demand of photovoltaic and lithium battery industry is expected to continue high growth. According to the prediction of the magnetic materials industry association, the global demand for magnetic materials is expected to increase by more than 10% per year in the next few years. According to the prediction of the photovoltaic industry association, from 2022 to 2025, the average annual new installed capacity of global photovoltaic will reach 232286gw. In terms of lithium batteries, the demand for lithium electrification of electric two wheeled vehicles, portable energy storage lithium batteries and global demand for lithium batteries for electric tools are expected to continue in large quantities.
Magnetic materials and photovoltaic business contributed mainly to revenue and gross profit. The production and sales of magnetic materials business increased steadily, and the production and sales of “photovoltaic + lithium battery” increased significantly. (1) In 2021, the company’s revenue was 12.607 billion yuan, a year-on-year increase of 55.54%. In terms of business, the operating revenue of photovoltaic business was RMB 6.499 billion, a year-on-year increase of 87.41%, accounting for 51.55% of the total revenue, and the operating revenue of magnetic materials business was RMB 4.269 billion, a year-on-year increase of 26.39%, accounting for 33.86% of the total revenue. (2) In 2021, the gross profit of the company was 2.291 billion yuan and the gross profit margin was 18.17%. In terms of business, the gross profit of photovoltaic business is 801 million yuan, the gross profit margin is 12.32%, accounting for 34.96% of the total gross profit, and the gross profit of magnetic materials business is 1.105 billion yuan, the gross profit margin is 25.09%, accounting for 48.23% of the total gross profit.
Driven by technological innovation, improve market competitiveness, continuously increase R & D expenses, reduce costs and increase efficiency, and continuously reduce the rate of three fees. (1) The company participated in and led the formulation of 33 standards at all levels. Among them, led and participated in the formulation of 13 international standards, 4 national standards, 10 industrial standards and 6 group standards. It has 1190 valid patents. Among them, there are 483 invention patents, 652 utility models and 55 design patents. In 2021, the R & D expenditure was 603 million yuan, a significant increase of 54.68% year-on-year, mainly due to the company’s increased R & D investment. (2) In 2021, the company’s three expenses totaled 615 million yuan, including 189 million yuan of sales expenses, 436 million yuan of management expenses and – 10 million yuan of financial expenses.
The production capacity continues to expand, and the future volume can be expected. From the perspective of the company’s projects under construction, in terms of “magnetic materials + devices”, soft ferrite and inductance are the areas with obvious capacity growth in the future. In terms of “photovoltaic + lithium battery”, photovoltaic modules and lithium battery are the areas with relatively concentrated investment. According to the announcement of the company, based on the existing and under construction projects, the company expects that by the end of 2022, the magnetic material industry will reach 220000 tons of ferrite pre burned materials, 165000 tons of permanent ferrite, 50000 tons of soft ferrite and 25000 tons of plastic magnet, the device industry will reach 1 billion inductors and 400 million vibrating devices, the photovoltaic industry will reach 9gw batteries and 7gw modules, and the lithium industry will reach 7gwh lithium battery capacity. The company’s business is in a period of rapid expansion, and its financial leverage is slightly higher than the industry average. In 2021, the asset liability ratio was 48.6%. In addition, in 2021, the company’s net operating cash flow was 1.285 billion yuan, with a year-on-year increase of 7.35%. The growth of operating performance has driven the growth of operating cash flow accordingly.
Investment suggestion: we expect the company’s operating income to be RMB 17.894 billion, RMB 22.422 billion and RMB 26.099 billion respectively from 2022 to 2024, and its net profit to be RMB 1.548 billion, RMB 1.960 billion and RMB 2.296 billion respectively, with corresponding EPS of RMB 0.95, RMB 1.21 and RMB 1.41 per share respectively. At present, the corresponding PE share price is 15, 11.9 and 10.1 times. The first coverage is rated as “overweight-a”, and the six-month target price is 17 yuan / share.
Risk tip: the demand is less than expected, the price of raw materials fluctuates sharply, and the project progress is less than expected
