\u3000\u3 China Vanke Co.Ltd(000002) 179 Avic Jonhon Optronic Technology Co.Ltd(002179) )
Event:
On March 30, 2022, the company released its annual report for 2021: the revenue was RMB 12.867 billion, a year-on-year increase of 24.86%, the net profit attributable to the parent was RMB 1.991 billion, a year-on-year increase of 38.35%, and the net profit not attributable to the parent was RMB 1.914 billion, a year-on-year increase of 38.77%.
Benefiting from the high prosperity of military industry, the 14th five year plan has a bright start, and the growth rate of revenue and net profit is the highest in recent six years. The annual revenue reached 12.867 billion yuan (+ 24.86%), a significant increase over the previous year, mainly driven by full business lines and orders. In terms of business, the company has made every effort to ensure production and delivery in the field of defense, and the market recognition has been continuously improved; The adjustment of communication and industrial business has achieved initial results, and breakthroughs have been made in the fields of intelligent travel and data center; The new energy vehicle business grasped the growth opportunities of the industry, deepened cooperation with key customers, steadily increased the penetration rate of mainstream vehicle lines, and doubled the order volume. In addition, according to the related party transaction information disclosed by the company, in 2022, the company expects to sell goods to subordinate units of the aviation industry with an amount of about 2.667 billion yuan (+ 37.52%), and the further acceleration of the growth rate also indicates a high boom in the defense field. Governance optimization led to continuous enhancement of profitability, stable increase in the proportion of R & D expenses, and increase investment in innovation. In 2021, the net profit was 1.991 billion yuan (+ 38.35%), with a growth rate higher than that of revenue, mainly due to the significant cost reduction and efficiency increase after the optimization of corporate governance. In 2021, the gross profit margin was 37.00% (+ 0.97pct), which we believe is mainly due to the increase in the proportion of military products with higher gross profit margin; During the period, the expense rate was 19.87% (+ 0.31 PCT), of which the sales expense rate decreased by 0.34 PCT to 2.84%, or reflected by the scale effect; The R & D expense rate increased by 0.81pct to 10.15%, reaching a record high, mainly due to the company’s increased investment in independent innovation capacity; Financial expenses decreased by 0.51pct, mainly due to the decrease of exchange losses; The increase in the rate of administrative expenses was 1.15 PCT, which was mainly due to the increase in employee salaries and repair costs.
Q4 revenue growth slowed, gross profit margin fell month on month, or mainly due to uneven production and delivery rhythm. In 2021q4, the revenue was 2.99 billion yuan (+ 13.31%), and the net profit attributable to the parent company was 368 million yuan (+ 8.27%). The growth rate of revenue and net profit slowed down year-on-year and decreased month on month. The main reason is that, on the one hand, in terms of historical performance, Q4 performance is generally lower than or equal to Q3 performance. This phenomenon is more obvious in 2021 or due to the acceleration of military product delivery and revenue recognition. On the other hand, according to the related party transaction information disclosed by the company, the actual growth rate of the related party transaction volume between the company and the aviation industry and its subordinate units in 2021 was only 15.33%, far lower than the growth rate of 24.86% of the company’s annual revenue, and the company’s Q4 gross profit margin was only 33.00%, lower than the annual average gross profit margin of 37.00%. In addition, the inventory of goods in the company’s inventory at the end of 2021 increased significantly by 79.81% compared with the beginning of the period, Therefore, we infer that the slowdown of Q4 revenue and net profit growth may be due to the delayed delivery of some defense products with high gross profit.
The significant increase of 246% in contract liabilities reflects the high prosperity of the downstream, the steady progress of production expansion and goods preparation, and the obvious improvement of cash flow. At the end of the reporting period, the contract liabilities reached 1.03 billion yuan, an increase of 246.00% over the beginning of the period, reflecting that the current orders are full; The ending inventory was 4.73 billion yuan, an increase of 69.41% over the beginning of the period, of which the raw materials increased by 65.99% and the products in process increased by 52.87% over the beginning of the period, reflecting that the company is in the state of stepping up procurement and production preparation; The construction in progress at the end of the period was 507 million yuan, a decrease of 47.08% compared with the middle of 2021, mainly due to the company’s South China industrial base project construction, photoelectric technology industrial base project (phase II) construction and self-made equipment construction carried forward as fixed assets. The company’s cash flow continued to improve. The net cash flow from operating activities in 2021 was 2.062 billion yuan (+ 62.74%), mainly due to the increase in cash received from the company’s sales of goods over the same period last year. The company’s monetary capital at the end of the period reached 8.303 billion (+ 81.24%), with abundant funds and cash flow in hand.
Fund raising and production expansion should meet the strong military and civilian needs of the downstream, expand product layout and improve sustainable profitability. On January 17 this year, the company issued 35576000 additional shares at the price of 95.57 yuan / share, with a net fund-raising of 3.393 billion yuan, which is mainly used to supplement working capital and invest in two production expansion projects:
1) the South China industrial base project, with a total investment of 2.255 billion (fund-raising investment of 1.1 billion), is mainly aimed at the civil connector business. It will build automatic and intelligent production lines of 5g and new energy vehicle connection products, and expand the capacity layout in relevant fields to meet the rapidly growing market demand. After the project is completed, it is expected to realize an annual sales revenue of 4.039 billion and a net profit of 281 million;
2) the basic device industrial park project (phase I), with a total investment of 1.673 billion (1.3 billion raised investment), is mainly aimed at the special connector business to build automatic and intelligent production lines of special optical fiber connectors, aviation integrated electronic interconnection systems and fluid connectors, so as to meet the rapidly growing needs of downstream aerospace, shipping, communication command, military uniform and other defense fields. We believe that the current demand in the field of defense is strong and the market space for civil products is broad. It is expected that with the continuous expansion of the company’s production capacity, the certainty of short, medium and long-term growth is high.
The unlocking of equity incentive is smooth, binding interests and helping long-term development. On December 18, 2021, the company announced that the restricted stock incentive plan (phase II) was unlocked for the first time. The announcement showed that all the assessment indicators of the company met the standards and were significantly higher than the industry average. The return on net assets of the company was 15.41% in 2020 and continued to increase to 17.51% in 2021; The operating profit margin was 16.13% in 2020 and increased to 17.46% in 2021, indicating that the equity incentive of the company has a good incentive effect. Considering that the company’s restricted stock incentive plan (phase II) has also completed the share grant in early 2020, we believe that the growth of the company in the 14th five year plan can be expected.
Investment suggestion: the company is a relatively stable target for the continuous growth of the military industry sector. It is a leading optoelectronic connection technology solution provider in China. The military and people go hand in hand in the 14th five year plan. Benefiting from the high prosperity of military industry and the recovery of civil products market, the demand increases, and it is expected to develop better in the future; South China industrial base and optoelectronic technology industrial base project (phase II) continued to advance, and capacity expansion closely followed a new round of industrial development. We estimate that the net profit from 2022 to 2024 will be RMB 2.697 billion, RMB 3.571 billion and RMB 4.557 billion respectively, and the PE corresponding to the current share price will be 34, 26 and 20 times respectively, maintaining the “Buy-A” rating.
Risk warning: the volume of military products business is less than expected; The business expansion of civil products such as new energy vehicles and 5g communications was less than expected
