Fulongma ( Fujian Longma Environmental Sanitation Equipment Co.Ltd(603686) )
Revenue hit a new high and profits fell. In 2021, the company achieved a revenue of 5.7 billion yuan (YoY + 4.8%), including 2.11 billion yuan (yoy-11.0%) for environmental sanitation equipment and 3.38 billion yuan (YoY + 11.7%) for environmental sanitation services. The record high revenue was mainly due to the new revenue of the original Yingshang Longma and Lingao Longma projects; The net profit attributable to the parent company was 340 million yuan (yoy-23.1%), which was mainly due to the expiration of preferential tax policies for the epidemic and the decline in the gross profit margin of environmental sanitation equipment business. Among them, Q4 achieved a revenue of 1.47 billion yuan (yoy-4.7%) in a single quarter and a net profit attributable to the parent company of 30 million yuan (yoy-70.8%).
Profits are under pressure, operating cash flow is declining, and expenses are properly controlled. In 2021, the company’s comprehensive gross profit margin was 21.4% (yoy-5.7pct) and net profit margin was 6.0% (yoy-2.2pct). The decline in profit was mainly due to the fluctuation of the overall upstream raw material steel price of the environmental sanitation equipment business (gross profit margin 19.3%, yoy-6.4pct), the change of customer structure, and the unreleased purchase volume of new energy environmental sanitation equipment; The environmental sanitation service business (gross profit margin 23.3%, yoy-2.5pct) will be affected by the reduction of national financial expenditure, the intensification of market competition and the withdrawal of epidemic policy in 2021. The company’s sales, management and financial expense rates were 4.8% / 5.5% / – 0.2%, yoy-1.9 / – 1.0 / – 0.2pct respectively, mainly due to the decrease of marketing expenses / the decrease of accrued performance incentive fund / the increase of interest income. The net operating cash flow was 120 million yuan (yoy-86.2%), mainly due to the decrease in payment for goods.
The revenue of environmental sanitation services increased, and the procurement of new energy equipment is expected to be released. ① The sanitation service business has been intensively developed. The company won 60 environmental service projects in 2021, with an annual amount of 640 million yuan in the first year, an annualized net amount of 3.75 billion yuan in Bracelet service, a total contract amount of 30.22 billion yuan and an outstanding contract amount of 20.52 billion yuan. ② The new energy vehicle industry development plan (20212035) proposes that from 2021, the proportion of new energy vehicles in new or updated vehicles in public areas in some areas shall not be less than 80%, and the growth of the industry will bring room for release. At the same time, the decline in power battery prices has accelerated the penetration of new energy electrification. In 2021, the market share of the company’s sanitation equipment was 5.9%, the market share of sanitation innovative products and medium and high-end operation vehicles was 10.2%, and the market share of new energy sanitation vehicles was 6.6%, all ranking third in the industry (according to the statistics of the CBRC). Investment suggestion: relying on the advantages of environmental sanitation equipment, the company vigorously promotes emerging businesses such as environmental sanitation services and solid waste disposal, as well as overseas businesses. The advantage of moving down the industrial chain is obvious. At the same time, the procurement volume of new energy equipment is expected to be released, creating new revenue points. It is estimated that from 2022 to 2024, the net profit attributable to the parent company of the company will be RMB 480 / 570 / 670 million respectively, the corresponding EPS will be RMB 1.2 / 1.4 / 1.6 respectively, and the corresponding PE will be 9.3 / 7.8 / 6.6x respectively. The current valuation level is low and the “buy” rating will be maintained.
Risk tip: the competition of environmental sanitation equipment intensifies and the company’s market share declines; The expansion of sanitation service market was less than expected.
