\u3000\u30 Guangdong Tengen Industrial Group Co.Ltd(003003) 54 Donghua Testing Technology Co.Ltd(300354) )
Event: the company’s operating revenue in 2021 was 257 million yuan (+ 25.22%), the net profit attributable to the parent company was 80 million yuan (+ 58.91%), the net profit not attributable to the parent company was 77 million yuan (+ 73.57%), the gross profit margin was 67.79% (+ 1.71 PCTs), and the net profit margin was 31.13% (+ 6.60 PCTs). In 2022q1, the revenue was 47 million yuan (+ 54.92%), the net profit attributable to the parent was 4.759 million yuan (+ 364.06%), the net profit not attributable to the parent was 4.4867 million yuan (+ 401.52%), the gross profit margin was 66.95% (-0.23 PCTs), and the net profit margin was 10.23% (+ 6.81 PCTs).
Key investment points:
In 2021, the development trend of military field is good, and the future will focus on the development of civil market
Since its establishment in 1993, the company has been focusing on the field of data acquisition, testing and analysis, fully invested in the research and development of products in this field, mastered a number of core technologies, and was listed on the gem in 2012. The company covers the fields of aerospace, national major equipment, machinery manufacturing, transportation energy and colleges and universities. Among them, military customers account for more than 60% of the business, which is the main source of the company’s income.
In terms of operation, in 2021, the company’s operating revenue was 257 million yuan (+ 25.22%), and the net profit attributable to the parent company was 80 million yuan (+ 58.91%), which significantly exceeded the growth rate of revenue. The main reason was that the company effectively implemented the business plan, strengthened core business, promoted product research and development, and strengthened revenue raising and expenditure reduction under the disturbance of shrinking economic demand and repeated epidemic, which not only ensured the stable growth of performance, but also ensured the significant increase of profits.
During the reporting period, the gross profit margin and net profit margin of the company reached a new high in recent eight years, and the gross profit margin increased steadily by 67.79% (+ 1.71 PCTs) and remained at a high level, mainly due to two reasons: on the one hand, the company is a technology-based company, the proportion of material cost expenditure is small, and the labor cost expenditure is relatively fixed; On the other hand, because the company’s main customers are in the field of national defense and military industry, most of them are customized products with the characteristics of high gross profit margin. Affected by the sharp decline of the three fee rate of 26.90% (- 5.66 PCTs), the company’s net profit margin increased significantly by 31.13% (+ 6.60 PCTs). Based on the company’s development plan, the future will focus on the development of “PHM based equipment intelligent maintenance management platform” business for enterprise customers. In the process of expanding downstream application fields, the short-term gross profit margin may fluctuate.
From the product level, the company’s products can be divided into three categories: sensors, test instruments and control analysis software. These products form a complete structural mechanics test and analysis system through combination.
1) the sensor receives the change of the physical quantity of the object to be measured and converts it into an electrical signal. The company attributed sensors to accessories and other products. During the reporting period, the revenue of this product category was 60 million yuan (+ 23.99%), accounting for 23.21% of the business revenue. The main reason was that the company upgraded the sensor production line, increased production capacity and strengthened R & D investment. In addition to optimizing the performance of existing products, new products were launched successively, such as high-temperature pressure sensors and optical fiber sensors, which have entered the trial production stage; Force sensors and wireless sensors have entered the stage of mass production.
2) the test instrument can convert the electrical signal into digital signal and transmit it to the computer for storage, analysis, display, etc. The products include static strain test and analysis system, dynamic signal test and analysis system, amplifier and other accessories. During the reporting period, the revenue of static strain test and analysis system was 35 million yuan (+ 14.38%), accounting for 13.52% of the business revenue; The revenue of dynamic signal test and analysis system was 149 million yuan (+ 28.96%), accounting for 58.05% of the business revenue. The main reason is that the company has strengthened product research and development, independently developed products that meet the measurement and control needs of different scenarios, improved the existing product system, optimized the existing system structure, reduced costs on the premise of ensuring performance, and made products more competitive in the market.
3) the control analysis software can analyze and process the signals of various functions and complete a variety of tests. It is generally used together with the test instrument. The “PHM based equipment intelligent maintenance management platform” developed during the reporting period collects and processes data through the big data platform, intelligently identifies and alerts equipment faults, helps users reduce costs and increase efficiency, and changes from regular maintenance to targeted fault maintenance. This product will have a broad market space in the civil field in the future. With the support of the company’s focus on promotion, it will quickly seize the market share in the future.
The first quarter of 2022 had a good start, with a significant increase in revenue and net profit attributable to the parent company
In 2022q1, the company’s operating revenue was 47 million yuan (+ 54.92%), and the net profit attributable to the parent company was 4.759 million yuan (+ 364.06%), which increased significantly, mainly due to the growth of the company’s business. We believe that on the other hand, it is due to the delayed confirmation of orders in 2021. Due to the outbreak at the end of 2021, some orders may not be delivered on time and the revenue recognition may be delayed.
The overall cost rate has decreased significantly, and the company attaches great importance to R & D investment; The operating capacity is improving and the operating cash flow is abundant
On the expense side, the company’s expense rate in 2021 was 37.44% (- 4.96 PCTs), which was mainly due to the significant decline of the three fee rate of 26.90% (- 5.66 PCTs), which was due to the increase of revenue and expenditure and the improvement of operation and management efficiency. As the company implemented the equity incentive plan in 2021, according to the announcement, it is expected to share about 124576 million yuan of equity incentive expenses in 2022, accounting for 38.76% of the total amortization expenses, which may lead to an increase in expenses. The company’s R & D expenses increased by 34.11% and the R & D expense rate was 10.54% (+ 0.70pcts), which was relatively stable and maintained at a relatively high level. The main reason was that the company established Shanghai Technology Research Institute and introduced high-end talents to study complex and forward-looking technologies. We believe that as the carrier of high-end technology, Shanghai Institute of technology will increase its investment in R & D personnel and technology in the future. In addition, while optimizing and upgrading existing products, the company has strengthened the research and development of new products and technologies, enriched the company’s product line and broadened the application field.
In terms of assets and liabilities, the company’s asset liability ratio was 9.28% (-2.91pcts) in 2021 and 7.83% (-3.03pcts) in 2022q1, which was at a low level. Moreover, the company did not borrow long-term and short-term loans and did not involve interest expenses, resulting in negative financial expenses and relatively healthy overall asset quality.
On the cash flow side, the company’s cash flow from operating activities in 2021 was 27 million yuan (+ 30.15%), an increase, mainly due to business growth and increased sales revenue.
Focus on the “4 + 2” business structure, and products and services go hand in hand
From the perspective of business, the company currently has four main businesses and two businesses to be expanded in the future. The four main businesses are mainly products and the two businesses to be expanded are supported by products and services.
The four main businesses are structural mechanical property research, structural safety online monitoring and defense equipment fault prediction and health management (PHM), PHM based equipment intelligent maintenance management platform and electrochemical workstation.
1) structural mechanical property research is one of the main businesses of the company and the earliest business of the company. Through the analysis of structural mechanical properties, the impact of environmental incentives on buildings and equipment structures can be accurately predicted. Its core technology “small signal amplification anti-interference system solution” can obtain accurate test data in harsh and strong interference environment. The improvement of equipment performance in aerospace, hydraulic engineering and other fields requires the detection of structural mechanical properties. After years of development and technical iteration, the company has basically achieved all aspects of product performance and functions, and even surpassed the foreign technical level in some aspects, but there is still a gap in some extreme environments. The structural mechanical property testing instrument is a scientific instrument track. With the support of strengthening the R & D and manufacturing background of high-end scientific research instruments proposed in the 14th five year plan, it will further promote the speed-up of the independent and controllable ability of the structural mechanical property testing industry, and the company will also benefit from the development of the industry.
2) structural safety online monitoring and defense equipment PHM is a sector derived from the research of structural mechanical properties, and it is also one of the main businesses of the company. This business can be divided into two parts. One is structural mechanics monitoring, which can monitor the equipment and be applied to bridges, large buildings, major equipment and other fields; The second is the military PHM business, which can carry out fault diagnosis, evaluate and warn the health status of objects to be tested, so as to provide guarantee for the safe operation of heavy equipment in large countries.
3) the equipment intelligent maintenance management platform based on PHM is a new software platform independently developed by the company in 2021 by combining the existing core technology with it technology to meet the needs of enterprise users for digitization and intellectualization of equipment maintenance management. By integrating the functions of equipment asset information management, spare parts life cycle management and predictive maintenance management, this platform helps enterprises realize the whole process services of equipment fault early warning and equipment maintenance management. The modular interface and equipment life cycle management also provide convenience for user operation. This business has a huge market space in the civil field. It will reduce costs and increase efficiency, facilitate product promotion and provide a new starting point for the growth of the company’s operating revenue by creating standardized products with strong industry universality.
4) electrochemical workstation, which is mainly used for electrochemical analysis and testing, corrosion and protection research, performance analysis of new energy batteries, etc. The company’s product series is relatively mature, and more than a dozen specifications of products have been derived. The product sales cooperation with universities, scientific research institutions and enterprise R & D institutions is being carried out in an orderly manner. The company is also actively docking, carrying out production line testing, quality control and other supporting services. The development of electrochemical workstation business is closely related to the prosperity of new energy industry. The high prospect of the industry creates favorable conditions for product market expansion, and the company’s products can feed back and help industry enterprises improve battery quality control and safety monitoring. In the future, the company will focus on the development of electrochemical workstation, in addition to realizing the standardization and scale of products, taking into account the promotion of customization ability, driving breakthroughs in key industries through cooperation with colleges and universities, quickly seizing the market and creating new profit points for the company by expanding the scale of marketing team.
Two major businesses to be expanded: one is the user-defined measurement and control analysis system, which meets the measurement and control needs of users for different scenarios by combining testing and control, so as to realize domestic substitution; The other is the topology optimization design of equipment structure and comprehensive treatment of vibration and noise reduction, so as to help small and medium-sized enterprises trace the product mechanism and help the dual upgrading of products and technology. These two businesses are the stepping stones to the derivation of application services based on the core technology of the test system. At present, they are still in the expansion stage. As the company’s key investment and development projects in the future, they have broad market space and can better serve customers and broaden the company’s business field after growing up.
Implement equity incentive plan to enhance cohesion
Based on the confidence in the growth of the company’s performance, and in order to mobilize the enthusiasm and cohesion of core employees, bind the interests of employees with the company and help the long-term development of the company, the company announced on October 29, 2021 that it would grant 2.4 million class II restricted shares (accounting for 1.74% of the company’s current total share capital) to 52 incentive objects with the grant price of 16.55 yuan / share. In addition, Shanghai Pudong Development Bank Co.Ltd(600000) shares (accounting for 0.43% of the current total share capital of the company) will be reserved. The incentive object will be determined within 12 months after the incentive plan is considered and approved by the general meeting of shareholders, and the price is the same as the grant price.
The assessment of the first and reserved part of the incentive plan is divided into two parts: the company level is based on the operating income in 2020, the assessment period is four fiscal years from 2022 to 2025, and the operating income growth rate is taken as the assessment index. During the assessment period, the operating income growth rate must reach 97%, 185%, 295% and 426% at least before enjoying the stock ownership at the company level according to the performance standard.
According to the highest goal of the incentive plan, the operating revenue from 2022 to 2025 is expected to be 450 million yuan, 651 million yuan, 899 million yuan and 1.201 billion yuan respectively, and the revenue growth rate is 74.89%, 44.75%, 38.17% and 33.56% respectively. The setting of such a high goal will drive the company’s performance to increase sharply.
Investment suggestions:
We believe that the company’s business will grow rapidly in the future, which can be divided into the following aspects:
① the two businesses of structural mechanical property research, structural safety online monitoring and defense equipment PHM are the main projects of the company. They have relatively mature technology and stable customer base, and will maintain a stable and not low growth trend in the future;
② while maintaining the steady growth of military industry income, the company will vigorously explore the civilian market. In addition to launching modular and standardized products with strong industrial applicability to reduce costs and provide preconditions for promotion, the company will also adjust the direct sales mode to the channel marketing mode to cover more customers and achieve the balanced development of military and civilian fields as far as possible;
③ as a technology driven company, the company needs to maintain technology leadership and adaptability to the market. Therefore, the proportion of R & D investment will continue to increase in the future, which will also contribute to the expansion of the company in downstream application fields 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 450 million yuan, 651 million yuan and 899 million yuan respectively, and the net profit attributable to the parent company will be 114 million yuan, 146 million yuan and 188 million yuan respectively (the expenses incurred by equity incentive in 2021 are estimated to be about 124576 million yuan, 9.0663 million yuan, 5.2709 million yuan, 2.6499 million yuan and 6214 million yuan respectively from 2022 to 2026), and EPS will be 82 yuan, 106 yuan and 136 yuan respectively. Based on the company’s industry and future development prospects, we give a “buy” rating, with a target price of 30.00 yuan, corresponding to 36.59 times, 28.30 times and 22.06 times of PE from 2022 to 2024 respectively.
Risk tip: product research and development is less than expected, shareholders’ lifting of the ban and reduction of holdings cause short-term fluctuations in stock prices, and market development is less than expected.
