\u3000\u3 Guocheng Mining Co.Ltd(000688) 636 Chengdu Zhimingda Electronics Co.Ltd(688636) )
Event: the company’s operating revenue in 2021 was 449 million (+ 38.43%), net profit attributable to parent company was 112 million (+ 30.30%), net profit not attributable to parent company was 101 million (+ 20.49%), gross profit margin was 61.08% (- 1.72 PCTs), net profit margin was 24.81% (- 1.55 PCTs).
The rapid growth of airborne and missile borne business has driven the rapid development of performance
Chengdu Zhimingda Electronics Co.Ltd(688636) was founded in 2002 and has been deeply engaged in the field of embedded computers for more than 20 years. It was listed on the scientific innovation edition in 2021. The company mainly provides military customers with customized embedded computer products, solutions and professional integrated services applied in airborne, missile borne, shipborne, vehicle and other fields.
During the reporting period, the company’s operating revenue was 449 million yuan (+ 38.43%), mainly due to the comprehensive promotion of the modernization of weapons and equipment in the first year of the 14th five year plan. In 2021, the military expenditure reached 1355343 billion, with a growth rate of 6.8%. Among them, optimizing the scale structure of weapons and equipment and developing new weapons and equipment are the key investment direction of military expenditure. Policy support has led to the improvement of industry prosperity and strong downstream demand. The company seized the development opportunity, We actively explored the market and obtained 167 new R & D projects, an increase of 45% over the previous year. At the same time, the orders on hand at the end of the reporting period reached 517 million yuan (including oral orders), a year-on-year increase of 29.57%. The net profit attributable to the parent company was 112 million yuan (+ 30.30%), and the net profit not attributable to the parent company was 101 million yuan (+ 20.49%). After excluding the cost of 26.16 million yuan paid for shares due to equity incentive during the reporting period, the net profit attributable to the parent company was 134 million yuan (+ 56.28%), and the growth rate significantly exceeded the growth rate of revenue. The gross profit margin is 61.08% (-1.72 PCTs), which has decreased slightly, but still remains at a high level, mainly because the company’s products are mainly customized and the gross profit margin is high. The net interest rate decreased slightly by 24.81% (-1.55pcts), mainly due to the increase in operating costs caused by the company’s payment of equity incentive fees, expansion of business scale, increase in the number of employees and changes in the structure of sales products during the reporting period.
In terms of business, the embedded computer modules and solutions built by the company are mainly used in airborne, missile borne, shipborne, vehicle borne and other fields, of which airborne and missile borne account for 66.62% and 14.30% of the revenue respectively. During the reporting period, the field of airborne and missile borne products developed rapidly. The operating revenue of missile borne products was 64 million yuan, with a year-on-year growth rate of 138.46%. We believe that the main reason is that missiles have the characteristics of consumption. Under the disturbance of geopolitical instability in recent years, the army continues to strengthen military training and war preparation and practical exercises to prepare for unexpected needs, so as to drive the increase of missile demand and bring opportunities for the sales of the company’s products, At the same time, it also provides a new starting point for the optimization of the company’s income structure; The operating revenue of airborne products was 299 million yuan, with a year-on-year increase of 56.50%. We believe that it is mainly because the company’s airborne products are mainly used in the avionics system of military aircraft, which is the most valuable part of military aircraft. Under the guidance of the 14th five year plan policy, the replacement and train loading of military aircraft accelerated, driving the double growth of the company’s product sales and revenue.
The overall cost rate increased slightly, and the company attaches great importance to R & D investment
On the expense side, the company’s expense rate during the period was 38.83% (+ 4.53pcts), which was mainly caused by the increase of management expenses and R & D expenses. Among them, the R & D expense rate is 21.06% (+ 3.75pcts). In addition to paying equity incentive expenses, the main reason is that the company continues to increase R & D investment. On the one hand, it vigorously expands the R & D team and adds 65 R & D personnel during the reporting period, with an increase of 28.51%. On the other hand, in order to attract and retain talents, the salary of R & D employees has increased by 40.84% over the same period of last year, and the total proportion of R & D salary in R & D expenses is as high as 69.51%; If the equity payment expense of 120682 million yuan is not considered, the R & D expense rate is 18.37% (+ 1.06 PCTs), which increases slightly and the R & D investment remains at a relatively stable level. We believe that as a technology-based enterprise, the company will continue to increase investment in R & D expenses in the future, and the growth rate of R & D personnel is expected to be about 20%.
The rate of administrative expenses was 10.77% (+ 1.57pcts), which was mainly due to the expansion of the company’s business scale, the increase of 107 employees, and the superposition of salary adjustment and equity incentive payment, resulting in an increase of 62.03% in administrative expenses compared with last year; The sales expense rate is 6.61% (+ 0.08pcts), which is mainly due to the company’s increased market expansion. With the surge of orders, the expenses incurred by after-sales service also increase accordingly; The financial expense rate was 0.40% (-0.86pcts), with a significant decrease, mainly due to the company’s repayment of bank loans and the decrease of interest expenses during the reporting period.
The operating capacity is improving and the operating cash flow is abundant
In terms of assets and liabilities, the company’s accounts receivable in 2021 was 301 million, an increase of 50.83% over the end of 2020, mainly due to the increase of sales revenue; The inventory was 238 million yuan, a year-on-year increase of 108.59%. Due to the increase of sales orders, the company actively organized goods preparation and production to cope with the rapid growth of downstream demand. We believe that on the other hand, the raw materials of the company have been independently controllable, and the independent R & D and production has led to the increase of inventory; At present, the company has no bad debts. Although the collection cycle is long due to the characteristics of the industry, with the implementation of national policies, the collection trend is good, the asset liability ratio is 31.81% (-6.53pcts), and the overall asset quality presents a good development trend.
In terms of cash flow, the company’s cash flow from operating activities was 67 million (+ 135.13%), which was mainly due to the increase of the company’s operating income, the increase of payment received, and the increase of cash collection rate compared with the same period of last year.
Break through the original industrial layout and horizontally spread the growth trend of products
From the perspective of products and solutions, the company provides a variety of products and chain solutions in weapons and equipment, including data acquisition, signal processing, data processing, communication exchange, interface control, image and graphics processing, large capacity storage, high reliable power supply. With the continuous efforts to explore the market, in addition to the interface control and data processing products that previously accounted for a high proportion of operating revenue, the business volume of graphics and high-speed storage has gradually grown, creating new profit points for the company.
At the business level, the company has participated in the development of various key models in airborne, missile borne and vehicle mounted aspects, and provided a variety of embedded computer solutions, including more than 100, more than 40 and more than 30, which shows the strong R & D ability of the company in the deployed field; It has also participated in key models in the shipborne field and provided a variety of embedded computer solutions. In addition to the application scenarios that have been fully covered, the company will strive to break through the on-board embedded computer market and improve the market share.
Increase the capital of mingkesi micro to promote the coordinated development of the industrial chain and provide the second growth curve for the company
During the reporting period, the company reached an investment agreement with Chengdu mingkesi Microelectronics Technology Co., Ltd. to increase its capital by 177.65 million yuan with its own funds, and held 34.99% after the capital increase. By the end of the reporting period, the company had contributed 64.6 million yuan to mingkesi micro, and the remaining amount to be contributed was 113.05 million yuan. Mingkesi micro focuses on the research and development of semiconductor integrated circuits and focuses on analog chip design and solutions. It has 10 patents (including utility models), 12 copyrights and 10 exclusive rights of integrated circuit layout design. With the support of a number of core technologies, mingkesi micro can provide customized services according to customer needs and has the ability of independent and controllable design and R & D.
Through this cooperation, the two sides complement each other’s advantages and achieve win-win results. For mingkesiwei, relying on the company’s mature market channels and good customer resources in the military industry will help it further expand its market share and enhance its competitiveness.
For the company:
① mingkesi micro has changed from the original analog conversion chip supplier to the partner role, ensuring the stability of the company’s supply chain;
② with the help of mingkesi micro’s customization ability in the chip field, it can help the company accumulate technology and better assist the company in responding to customer needs;
③ in the context of today’s big country game, Chinese enterprises are constantly subject to foreign sanctions, and there is no time to develop localization substitution. Under the promotion of national policies, combined with mingkesi’s rich experience in ADC field, improve the company’s independent and controllable ability in chip field and accelerate the company’s domestic substitution process.
④ as an important component of embedded computer, chip will have broad space and application market in both special and civil fields in the future. After large-scale production, it will become the second growth curve of the company. The company has disclosed in the announcement that the company will acquire 51% of the equity by 2023 when mingkesi micro reaches breakeven. Overall, this acquisition is an important layout of the company on the industrial line.
Implement equity incentive plan to enhance cohesion
Based on the confidence in the company’s performance growth, and in order to mobilize the enthusiasm of core employees, bind the interests of employees with the company, improve the company’s talent incentive system and help the company’s long-term development, the company announced on July 9, 2021 that taking the day as the first and reserved restricted stock grant date, the company granted a total of 1039500 restricted shares to 96 incentive objects at a grant price of 34.50 yuan / share. Among them, 335600 class I restricted shares were granted to 8 people, and the registration was completed in September of the same year; For the first time, 691900 class II restricted shares were granted to 88 people, and 12000 class II restricted shares were reserved.
The incentive plan for class I restricted stocks and class II restricted stocks is based on the net profit in 2020, the assessment period is three fiscal years from 2021 to 2023, and the net profit growth rate is taken as the assessment index. Only when the net profit growth rate during the assessment period is not less than 40%, 70% and 100% respectively, can they enjoy the power of lifting the ban on granted shares and vested shares respectively; The second type of restricted stock reserved is also based on the net profit in 2020, but the assessment period is two fiscal years from 2022 to 2023, and the growth rate of net profit during the assessment period is not less than 70% and 100% respectively.
At present, the company’s net profit attributable to the parent company was 112 million yuan in 2021 and 86 million yuan in 2020, with a year-on-year increase of 30.30%; After deducting 26.16 million yuan generated from the payment of equity incentive in 2021, the net profit attributable to the parent is 134 million yuan, and the growth rate of net profit attributable to the parent is 56.28%. According to the announcement, about 38.88 million yuan of the remaining expenses arising from equity incentive will be apportioned in 2022, with an increase of 45.26% over the previous year, resulting in a further increase in the period expenses and a decrease in the net profit attributable to the parent company.
After the fund-raising project is implemented, it will help the company’s revenue to a higher level
The funds raised by the company’s initial public offering in 2021 are mainly used for the investment needs of three projects: embedded computer capacity expansion project, R & D center technological transformation project and supplementary working capital. Among them, the embedded computer capacity expansion project is expected to be completed by the end of 2023. After the implementation, under the condition of the expansion of the company’s scale, it can provide sufficient space to support the increase of equipment and production lines, meet the increasing demand, improve the company’s production capacity, reduce outsourcing and improve production efficiency; It is expected that after the completion of the R & D center and the improvement of supporting technology, the company’s R & D capacity and market competitiveness will be strengthened by the end of February 2026.
Investment suggestions:
We believe that the company will maintain a stable growth trend in the future. The reasons can be divided into the following aspects:
① the growth of the global embedded system industry has increased the demand for advanced and excellent embedded equipment. In China, the key direction of national defense construction is to promote the construction of military informatization and realize the independent control of weapons and equipment. As the representative of intelligence, informatization and modernization in weapons and equipment, embedded computer will benefit from the golden age of industry development;
② the company’s business is highly bound with the military industry group, the downstream demand is full, and the company’s order volume increases. With the upgrading and upgrading of military aircraft structure, it will drive the improvement of the company’s demand for airborne products; At the same time, with the increasing uncertainty of the global situation, on the one hand, it urges the Chinese army to strengthen military training and preparation and actual combat exercises, on the other hand, it drives the development of the military trade market, which has spawned the demand for missiles with precision guidance and strike capability, and the business volume of the company’s missile market will continue to increase in the future;
③ the company’s capital increase in mingkesi micro and the layout of ADC chip business will help the company solve the problem of raw material supply and accelerate the domestic substitution process in the future. At the same time, due to the universality of military and civil, it can help the company develop into the civil field in the future.
Based on the above point of view, we estimate that the operating revenue of the company from 2022 to 2024 will be 611 million, 781 million and 963 million respectively, and the net profit attributable to the parent company will be 134 million, 175 million and 225 million respectively (except for the accrued part in this year, the other expenses will be apportioned from 2022 to 2024, with the accrued amounts of 38.88 million yuan, 15.12 million yuan and 4.43 million yuan respectively), and EPS will be 2.67 million yuan, 3.47 yuan and 4.47 yuan respectively, The closing price of the company on April 15 was 82.22 yuan, corresponding to 30.85, 23.70 and 18.41 times of PE from 2022 to 2024. Based on the company’s industry and future development prospects, we give a “buy” rating, with a target price of 120.00 yuan, corresponding to 45.03 times, 34.59 times and 26.88 times of PE from 2022 to 2024 respectively.
Risk tips: the risk of purchasing core raw materials, the risk of product R & D and delivery falling short of expectations, the risk of high proportion of accounts receivable and long collection cycle, the management risk caused by scale expansion, the risk of shareholders’ lifting the ban and reducing their holdings, the risk of market development falling short of expectations, the downstream demand falling short of expectations, and the industry boom falling short of expectations.
