\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 435 North Navigation Control Technology Co.Ltd(600435) )
Event: the company disclosed the annual report of 2021 on March 22. During the reporting period, the company realized an operating revenue of 3.992 billion yuan (+ 32.81%), a net profit attributable to the parent of 134 million yuan (+ 113.67%), a net profit of 124 million yuan (+ 472.51%), a basic earnings per share of 0.09 yuan, a gross profit margin of 20.65% (- 0.74pcts) and a net profit margin of 5.45% (- 0.70pcts).
Key investment points:
The company’s dual-use revenue increased significantly, roe reached a record high in the past decade, and the scale of related party transactions continued to increase, indicating that the volume of subsequent military products business is expected to continue to increase
During the reporting period, the company achieved an operating revenue of 3.992 billion yuan (+ 32.81%), net profit attributable to the parent company (134 million yuan, + 113.67%) and net profit after deduction (124 million yuan, + 472.51%), both of which achieved substantial growth. The roe level reached a new high of 5.86% (+ 3.00pcts) in recent ten years, mainly due to the rapid growth of the company’s revenue from dual-use products with high gross profit margin and the reduction of the company’s three fee rate (8.79%, – 1.44pcts).
In terms of expenses, the sales expense ratio (2.25%, -0.34 PCTs) and management expense ratio (6.91%, -0.84 PCTs) show that the operating efficiency of the company has improved significantly. Among them, the compound growth rate of R & D expenses (198 million yuan, + 21.35%) from 2018 to 2021 was 20.70%, which was mainly due to the company’s efforts to enhance R & D investment, focus on building a technological innovation system under the guidance of scientific research projects, break through key core technologies, and strengthen in-depth exchanges and cooperation with colleges and universities and scientific research institutes.
In terms of other financial data, during the reporting period, the company’s inventory was 706 million yuan, an increase of 15.28% over the beginning of the period, and the contract liabilities were 132 million yuan (+ 149.90%), which reflected that the company had many business orders on hand and was actively preparing goods. Meanwhile, the company’s current inventory turnover rate increased from 4.01 times in 2020 to 4.81 times, and the pace of production and delivery accelerated.
At the same time, we note that the company expects that the sales of commodity related party transactions (all military products business) will not exceed 4.2 billion yuan in 2022, with a year-on-year increase of 49.89%; In 2021, the company had sales related party transactions of 2.802 billion yuan (the estimated value is 3 billion yuan), an increase of 67.88% over the scale of 1.669 billion yuan in 2020. The overall scale of sales related party transactions has increased significantly, indicating that the growth of military products business volume of subsequent companies is expected to continue to increase.
Intelligent manufacturing capacity continues to upgrade, promote the construction of intelligent manufacturing and management informatization, and promote the digital transformation and upgrading of enterprises. The company aims to build a “Data-Driven intelligent factory” and build an intelligent and flexible production line and information system suitable for the development of the company. The operation of each production line has achieved remarkable results, the level of visualization, automation, standardization and informatization has been greatly improved, and the manufacturing capacity and general assembly and adjustment capacity of precision machinery have been continuously improved. At the same time, carry out research on man-machine collaborative engineering construction, give play to the role of intelligent flexible production line technology innovation platform, and promote the construction of management informatization. We believe that it is expected to reduce the marginal cost in the future.
The core technology of guidance and control is dominant, and military products such as communication make multi-point efforts
The company is a manufacturing enterprise mainly engaged in level II, III and IV supporting military products. During the reporting period, the company’s main business income was 3.759 billion yuan (+ 29.46%), with a gross profit margin of 21.60% (- 0.96pcts). The main business of dual-use products is “navigation control and ammunition information technology”, including guidance control, navigation control, detection control, environmental control, stability control, radio and satellite communication, electrical connectors and other products and technologies, The company’s military products are mainly complete machines and core components in the fields of navigation control, ammunition information system, short wave radio and satellite communication system, military electrical connectors and so on.
The company mainly owns and shares four subsidiaries: Harbin Jiancheng (holding 100%), Hengyang North Optoelectronics (90.69%), zhongbing communication (48.44%) and zhongbing aviation Union (43.06%). Harbin built the North Special Purpose Vehicle (100% owned by the company), with an operating revenue of 258 million yuan (+ 118.32%) and a net profit of – 252494 million yuan (a loss of 479921 million yuan in the same period of last year, narrowing the loss). In terms of military products, it mainly relies on the military products supporting tasks of the aviation bomb Institute. In terms of civil products, in the face of the adverse factors of market decline, it expands the market, strives for product orders and actively reduces losses. On March 18, 2022, the first extraordinary general meeting of shareholders of the company decided to transfer 100% equity of Harbin North special purpose vehicle to China Ordnance Industry Group aviation bomb Institute and navigation group respectively, so as to further focus on the main business and improve profitability.
According to the annual report data disclosed by zhongbing communication (the company holds 48.44% shares), during the reporting period, the revenue was 627 million yuan (+ 5.99%), and the net profit was 111 million yuan (- 44.81%). The main reason for the decrease in net profit was that zhongbing communication received the income from real estate and land disposal in 2020, and the net profit returned to the parent company after deduction was 108 million yuan (- 7.76%), and the main products were the production and sales of military, military and civil dual-use communication and electronic equipment, The main products are ultrashort wave communication equipment and satellite communication equipment, which are widely used in military fields such as land, sea and air. In the field of military ultrashort wave ground to air communication, China’s market share reaches 60%. At present, zhongbing communication has made progress in transferring from the new third board to the North stock exchange.
Zhongbing aviation Federation (43.06% owned by the company) achieved a revenue of 366 million yuan (+ 15.33%) and a net profit of 500729 million yuan (+ 16.77%), mainly engaged in military products business. Its main products are electrical connectors, wire harnesses and other connection systems. During the reporting period, it was newly recognized as a “specialized and special new” small giant enterprise in Jiangsu Province. It was selected as the preferred supplier for centralized procurement of ordnance industry group and was rated as the preferred supplier in 2021.
Hengyang North Optoelectronics (90.69% owned by the company) achieved an operating revenue of 160 million yuan (+ 35.06%) and a net profit of 214209 million yuan (+ 21.43%). The significant improvement in performance mainly benefited from the company’s continuous promotion of production line construction and the improvement of core competence. It passed a license increase during the reporting period.
It can be seen that regardless of the completion of Harbin, which is about to be stripped off, the revenue and profit of the company’s three important subsidiaries have increased steadily in 2021. We judge that the guidance and control information track where the company’s dual-use products are located is expected to maintain a high prosperity in the 14th five year plan, and the strong downstream demand will continue to be reflected in the performance of the company in the next few years of the 14th five year plan.
The company divested all equity of loss making subsidiaries and focused on the main business to improve profitability
In order to further focus on the main business, strengthen the integration of business resources and optimize the layout of industrial structure, the company transferred 100% equity of the company’s wholly-owned subsidiary northern special vehicle to China Ordnance Industry Group aviation bomb Institute and navigation group respectively. The appraisal value of the equity of the North special purpose vehicle involved in this related party transaction is 312 million yuan. The transaction amount exceeds 30 million yuan and exceeds 5% of the company’s latest audited net assets. After the completion of this transaction, the special vehicle for the north will be controlled by the aviation bomb Institute. The annual net profits of special vehicles in the north from 2019 to 2021 were -1.335 million yuan, – 479921 million yuan and -252494 million yuan respectively. In recent years, the operation of special vehicles in the North was difficult, and a large loss began to appear in 2019. In 2020, affected by the epidemic, the income decreased and the loss increased, while the military product outsourcing business relying on the aviation bomb Institute became its only business to achieve income growth.
This equity transfer will help the company to streamline its main business, improve asset quality and profitability.
The company implements stock incentive to improve the enthusiasm of employees and pay common attention to the long-term development of the company
The company has implemented the 2020 stock option incentive plan, granting 29592200 shares to 108 incentive objects (accounting for 4.55% of the 2373 registered employees of the company), accounting for about 1.99% of the company’s share capital, and the exercise price is 8.59 yuan / share. This plan will further enhance the cohesion of employees and the stability of the team, promote the company to establish and improve the incentive and restraint mechanism, fully mobilize the enthusiasm, sense of responsibility and sense of mission of the company’s directors, senior managers and core backbone personnel, effectively combine the interests of shareholders, the interests of the company and the personal interests of managers, and jointly pay attention to the long-term development of the company.
Investment advice
We believe that 1) the demand for actual combat training and war preparation has also led to the increase of the “quantity” of weapons and equipment demand: the spokesman of the Ministry of defense disclosed in June 2021 that the ammunition consumption of the whole army increased significantly in the first half of the year, and the proportion of highly difficult subject training continued to increase. We believe that with the military comprehensively strengthening military training and preparation and increasing practical exercises, ammunition, as an indispensable consumable equipment of the modern army, is a veritable “consumable” of the army, and its demand is expected to maintain a sustained and stable growth during the 14th Five Year Plan period. As a high-value part of guided missiles, the company’s guidance products are expected to drive the continuous growth of the company’s performance;
2) with the launch of China’s national defense informatization construction in the 14th five year plan, the military national defense informatization construction is expected to grow rapidly. It is expected that the procurement quantity of China’s military communication equipment will increase rapidly, and military communication and satellite communication will usher in rapid development opportunities, which is conducive to the company’s market layout and is expected to benefit from the acceleration of the industry. Meanwhile, the company’s divestiture of all equity of loss making subsidiaries will have an impact on the total scale of the company’s operating revenue in the short term, but the divestiture of loss making businesses will focus on the main business for a long time, which will effectively improve profitability.
We judge that the guidance and control information track of the company’s dual-use products in the 14th five year plan is expected to maintain a high view, and the strong downstream demand will continue to be reflected in the performance of the company in the next few years of the 14th five year plan. The company expects to achieve an operating revenue of more than 4 billion yuan and a total profit of more than 200 million yuan in 2022, steadily improving high-quality development benefits;
3) the company aims to build an “intelligent factory based on data drive” and build an intelligent and flexible production line and information system suitable for the development of the company. The operation of each production line has achieved remarkable results, the level of visualization, automation, standardization and informatization has been greatly improved, and the scale effect is strong. It is more consistent with the “quality first, benefit first, low cost with high quality as the premise and high quality guided by low cost” proposed by the army equipment department.
Based on the above point of view, we estimate that the company’s operating revenue from 2022 to 2024 will be 5.167 billion yuan, 6.832 billion yuan and 8.973 billion yuan respectively, the net profit attributable to the parent company will be 186 million yuan, 244 million yuan and 315 million yuan respectively, and the EPS will be 0.12 yuan, 0.16 yuan and 0.21 yuan respectively. We give a “buy” rating, with a target price of 11.70 yuan, corresponding to 98 times, 73 times and 56 times of the predicted income from 2022 to 2024.
Risk warning: the delivery of military products is less than expected, the continuity of market expansion of civil products is less than expected, and the procurement demand of military customers is volatile
