\u3000\u30 Shenzhen Fountain Corporation(000005) 61 Shanxi Fenghuo Electronics Co.Ltd(000561) )
Event: the company released its annual report for 2021. In 2021, the company realized operating revenue (RMB 1.502 billion, + 8.29%), net profit attributable to the parent company (RMB 111 million, + 12.22%), net profit attributable to the parent company after deduction of non profit (RMB 82 million, + 71.64%), and gross profit margin (41.64%, + 374pcts).
Key investment points:
The company is the backbone of scientific research and production in China and a “benchmark” demonstration enterprise of scientific reform
The company is a backbone enterprise in the scientific research and production of national military and civil communication equipment and electroacoustic equipment. It is a high-tech enterprise recognized by the Ministry of science and technology. Its products provide excellent communication equipment for national defense, and are also widely used in the fields of emergency support, earthquake resistance and flood control, public security and civil air defense, marine transportation and so on. In 2021, the company was rated as a “benchmark” scientific and technological reform demonstration enterprise by the state owned enterprise reform leading group of the State Council. It is one of the eight local state-owned enterprises selected as a “benchmark” and the only selected enterprise in Shaanxi Province.
The company’s military and civilian products have been consolidated and developed, and multi product batch loading or winning market orders have supported the company’s performance growth
In 2021, the company realized operating revenue (1.502 billion yuan, + 8.29%), net profit attributable to the parent company (111 million yuan, + 12.22%), and net profit attributable to the parent company after deduction of non profit (82 million yuan, + 71.64%). In 2021, the company’s main communication industry was further developed, and a number of military and civilian products were installed in batches or won market orders, consolidating its market position.
Business analysis: the revenue of communication products and supporting services (1.246 billion yuan, + 4.07%) and gross profit margin (41.36%, + 5.24pcts); The business of electroacoustic instrument achieved revenue (236 million yuan, + 41.01%) and gross profit margin (42.59%, – 4.64pcts). The gross profit margin of the company’s largest main business increased, which promoted the rise of the company’s comprehensive gross profit margin (41.64%, + 3.74pcts).
During the reporting period, the company’s main communication industry was further consolidated and developed. The order contract and revenue of an aviation material have exceeded 100 million yuan for four consecutive years, and the market position of handheld life-saving products has been further consolidated. The general-purpose digital machine has been installed in batches in several key models of projects. A product has completed scientific research appraisal and won the market order of trainer aircraft. The demonstration and project approval of a project of Shaanxi airlines and psychological warfare aircraft supporting spatial noise reduction system has been completed. A mobile Internet has received key attention, and the needs of authorities have been upgraded and improved. In the civil products market, the joint tactical communication basic network sub overall – Hot access equipment successfully won the bid and achieved the first batch of orders. The company’s independently developed extravehicular spacesuit communication cap and voice device assisted the manned space mission of Shenzhou spacecraft. The civil aviation civil audio control system passed the audit of the navigation center and successfully “signed”.
The company’s projects under construction are gradually converted to fixed assets, and the breakthrough of core key technologies will lay a foundation for the company’s future revenue growth
The company’s three fee expense rate (19.22%, + 1.39 PCTs) increased, including sales expense rate (1.95%, – 0.18 PCTs), management expense rate (16.72%, + 0.84 PCTs) and financial expense rate (0.56%, + 0.73 PCTs). The company’s R & D expenses (RMB 235 million, + 13.40%) continued to grow, and breakthroughs were made in core key technologies during the reporting period. The software of the new generation Airborne Short Wave link technology was solidified, the short wave full band narrowband fast frequency selection technology was specially verified, and the broadband high-performance modem technology completed software development and function verification. We believe that the breakthrough and verification of a number of technologies will lay the foundation for the sustainability of the company’s future revenue growth.
The company’s inventory (835 million yuan, + 29.57%) increased, of which the products in process (432 million yuan, + 63.51%) increased rapidly, and the company’s contract liabilities (115 million yuan, + 179.11%) increased significantly, which reflected the increase of the company’s orders and active preparation of goods. Notes receivable and accounts receivable (RMB 1.358 billion, – 3.39%) decreased, mainly due to the company’s strengthening of product pre investment control and payment recovery, guiding and encouraging efficiency, and increasing efforts to clean up long-term inventory and long-term accounts receivable. The construction in progress of the company is gradually transferred to fixed assets, including construction in progress (RMB 213 million, – 53.99%) and fixed assets (RMB 566 million, + 105.87%). During the reporting period, the office building of Beijing R & D center was transformed and put into use, the relocation of Xi’an R & D center was completed, and the layout of R & D capacity in Beijing, Xi’an and Baoji was basically formed. We believe that with the large volume of the company’s downstream models and the growth of orders, the company actively prepares goods to meet the demand, and the future performance is expected to gradually increase.
The decrease in net cash flow from the company’s operating activities (32 million yuan, – 64.62%) was mainly due to the increase in cash payments for goods and services in the reporting period compared with the same period of the previous year.
Investment suggestions:
The company is a leader in the development and production of China’s defense aviation search and rescue communication equipment and a designated manufacturer of electroacoustic communication terminal products. It has successfully independently developed four generations of short wave communication equipment for our army, representing the highest level in China’s industry, and can provide a full power series of Airborne short wave products. With the large volume of the company’s downstream models and the growth of orders, the company actively prepares goods to meet the demand, and the future performance is expected to gradually increase. We estimate that the net profit attributable to the parent company from 2022 to 2024 will be 128 million yuan, 148 million yuan and 176 million yuan respectively, and the EPS will be 0.21 yuan, 0.24 yuan and 0.29 yuan respectively, corresponding to 33.9, 29.2 and 24.6 times of PE respectively. Based on the industry position of the company and the future development prospect of the products, we give a “buy” rating with a target price of 8.60 yuan / share, corresponding to 41.0, 35.8 and 29.7 times of PE from 2022 to 2024 respectively.
Risk warning: the market competition intensifies and the downstream orders are less than expected
