\u3000\u3 Guocheng Mining Co.Ltd(000688) 777 Zhejiang Supcon Technology Co.Ltd(688777) )
Event: on the evening of April 11, 2022, the company released its annual report for 2021. In 2021, the company realized a revenue of 4.519 billion yuan, a year-on-year increase of 43.1%; The net profit attributable to the parent company was 582 million yuan, a year-on-year increase of 37.4%. The company’s annual report performance slightly exceeded expectations.
The prosperity of DCS business continued, and many business layouts such as automation instruments, industrial software and 5S stores began to enter the track of high growth. In 2021, the company’s intelligent manufacturing solutions business realized a revenue of 3.258 billion yuan, with a year-on-year growth rate of 39.8%, confirming the continued prosperity of industrial demand. A number of new businesses have entered the high growth track. In 2021, the company achieved a breakthrough in key customers, so the growth rate of automation instrument business is as high as 44%; Deepen and optimize the operation of 5S stores, continuously expand the scale of single 5S stores, and achieve revenue of 129 million yuan in 2021, with a year-on-year increase of 206.71%; The product system of industrial software has been continuously enriched. In 2021, the revenue of industrial software (including “industrial software” projects sold separately and “control system + software + others” in intelligent manufacturing solutions) reached 871 million yuan, with a year-on-year growth rate of 63.4%.
The market share continues to increase, which confirms that the core competitive barriers of the company are continuously thickened. According to the statistics of Rui industry, the market share of the company’s core product distributed control system (DCS) in China reached 33.8% in 2021, an increase of 5.3 percentage points compared with that in 2020, and ranked first in China’s DCS market share for 11 consecutive years. Among them, the market share of the company in the chemical industry reached 51.1% in 2021, 6.9 percentage points higher than that in 2020; In 2021, the company’s market share in the petrochemical field reached 41.6%, 7.6 percentage points higher than that in 2020. According to the statistics of China industrial control network, the Chinese market share of the company’s core product safety instrument system (SIS) in 2021 was 25.7%, 3.3 percentage points higher than that in 2020, ranking second; Among them, it ranks first in the market share of the chemical industry. In 2021, the Chinese market share of the company’s core industrial software product advanced process control software (APC) was 28.6%, 1.6 percentage points higher than that of last year, ranking first.
The adjustment of accounting caliber superimposes the demand for horse racing enclosure, and the gross profit margin is under pressure periodically. 1) According to the latest accounting standards, in 2021, the company reclassified transportation costs from selling expenses to operating costs, resulting in an increase in operating costs and a decrease in gross profit. 2) In order to quickly occupy the market and expand the market share of business, the company sacrificed a certain business gross profit margin, resulting in a decline in the gross profit margin of all businesses of the company in 2021. The gross profit margin of intelligent manufacturing solutions / automatic instruments / industrial software / operation services decreased by 5.25/3.94/4.67/11.98 PCT respectively, and the overall gross profit margin of the company decreased by 5.6 PCT.
Excellent fee control ability and maintain the profitability of the company. In 2021, the company’s sales / management / financial expense ratio was 11.8% / 6.6% / 11.0% respectively, which was significantly lower than that in 2020, reflecting the company’s excellent cost control ability. When the gross profit margin fell, the net profit margin remained roughly the same as that in 2020, maintaining the profitability of the company.
Not just DCS: how to view the long-term development of Zhejiang Supcon Technology Co.Ltd(688777) . 1) From industry 3.0 to industry 4.0, from single control system to solution, the whole industrial process layout of the company has become a big cake, enabling the downstream intelligent transformation. Reflected in the financial data, the proportion of revenue from automatic instruments and industrial software continued to increase, and the revenue structure continued to be optimized. In SIS and other new markets, the company is also moving forward at full speed, attacking multiple categories at the same time, and constantly achieving “zero” breakthroughs. We think it is biased to judge the development of the company with DCS single product as anchor. 2) The word “instrument” is not synonymous with low-end products. The price of high-end precision instrument valves can even exceed one million yuan. In the future, with the gradual medium and high-end of the company’s instrument product line (currently taking the medium and low-end volume as the main strategy), it is expected to bring a stronger boost to the company’s long-term development and market awareness. At the same time, with the continuous breakthrough of the company’s instrument business in “three barrels of oil”, it is expected to bring the expansion of customer coverage and accelerate the growth of sector revenue in the future. 3) 5S service station is a “sentry”. 5S service station opens up the “last mile” of customer service in the park, improves customer stickiness, integrates industrial resources and speeds up product iteration. It can not simply judge the size of strategic value based on its business gross profit margin. 4) “Software determines height and hardware determines foundation”. The commercial nature of industrial software in the process industry determines that its downstream demand is fragmented and non standardized, and the business model needs to follow the high-end, professional and customized route. Therefore, although the industrial software track has a huge long-term space, it should not be too demanding in the short term. The proportion of the company’s industrial software revenue should increase rapidly.
How to understand the valuation of Zhejiang Supcon Technology Co.Ltd(688777) ? The peg of overseas comparable industrial software giant is significantly greater than 1, and the extremely high technical barriers bring considerable valuation premium. From the control system to the overall solution, the combination of product hardware performance and industry know-how will further enhance the customer stickiness. The extremely high industrial barriers and the current high scenery of the track are expected to bring the company’s valuation center upward.
Maintain the “buy” rating. We expect the company’s operating revenue to reach 5.988/79.55/10.506 billion yuan and net profit to reach 7.51/9.40/1.343 billion yuan respectively from 2022 to 2024, maintaining the “buy” rating.
Risk warning: fluctuation risk of downstream industry; R & D investment is less than expected; Import risks of some important raw materials; Covid-19 outbreak is a risk of continuous fermentation.
