\u3000\u3 Guocheng Mining Co.Ltd(000688) 296 Zhejiang Heda Technology Co.Ltd(688296) )
Event: the company released its annual report for 2021. In 2021, the company realized an operating revenue of 510 million yuan, a year-on-year increase of 39.6%; The net profit attributable to the parent company was 100 million yuan, a year-on-year increase of 32.4%; The net profit attributable to the parent company after non deduction was RMB 80 million, with a year-on-year increase of 14.1%, which was in line with our expectations.
In the context of large investment in the national water pipe network, we are optimistic about the development of the water information industry: from the performance of mainstream intelligent water meter companies exceeding expectations in 2019 to the full swing and high performance of the water information industry in 2021, in the process of tracking the intelligent transformation line of the water pipe network, we have paid attention to the phenomenon of expanding the category and investment of the internal products of intelligent water meter companies and water information (intelligent water companies) in the industry from bottom to top, It is observed that water companies have strong demands for intelligent transformation; On December 14, 2021, at the central economic work conference, the general secretary of Xi Jinping pointed out that during the 14th Five Year Plan period, pipeline reconstruction and construction must be taken as an important infrastructure project; This also means that the logic of top-down China's pipe network transformation is clear. Under the background of national digital reform and water conservation and energy conservation, the digital transformation of the water industry has accelerated, benefiting from the development of the water information market and the competitive advantages of the company's products, the business scale has maintained rapid growth, and the annual operating revenue has achieved rapid growth.
Policy catalysis: General Secretary Xi of the 2021 central economic work conference stressed the need to take pipeline reconstruction and construction as an important infrastructure project. In January 2022, the Ministry of water resources issued the guiding opinions on vigorously promoting the construction of smart water conservancy, which pointed out: promote the construction of smart water conservancy and promote the intelligent construction of major water conservancy projects. China smart water has also officially moved from intelligent water supply to intelligent water supply and drainage. In 2019, China's urban water supply penetration rate reached 98.78%, while the township water supply penetration rate was 80.50%. Therefore, for the construction of water supply network, more focus is on intelligent and information construction, while the construction of drainage network focuses on pipeline laying.
The company is a leader in water informatization. We expect the compound growth rate of the company's revenue in the next three years to be 30% +. In 2021, the growth rate of the company's revenue was close to 40%, and the growth rate of net profit attributable to the parent company after deduction was 14%. The reasons were as follows: (1) in 2021, the company's gross profit margin decreased by 3.19pct to 44.78% year-on-year. The decline in gross profit margin was mainly due to the increase in the proportion of the company's revenue from water informatization and overall solution projects, and the gross profit margin of some sub projects was low due to the first implementation; (2) The company increased R & D investment, and the R & D expense rate increased by 1.77pct to 12.48% year-on-year. We are optimistic about the development of the company as a leader in water informatization in the next three years. We expect the compound growth rate of the company's revenue to exceed 30% in the next three years
Profit forecast and investment rating: we adjusted the company's EPS forecast from 1.37 and 1.98 yuan / share to 1.19 and 1.61 yuan / share from 2022 to 2023. It is expected that the EPS will be 2.32 yuan / share in 2024, corresponding to 22 times, 16 times and 11 times of PE. Based on our optimistic about the development of water information industry under the background of large investment in water pipe network, we maintain the "buy" rating.
Risk warning: the risk of national fiscal policy tightening beyond expectations; The risk that the intelligent transformation process of China's water pipe network is less than expected; The risk of non recovery of the company's accounts receivable, etc.
