\u3000\u3 Guocheng Mining Co.Ltd(000688) 311 Chengdu M&S Electronics Technology Co.Ltd(688311) )
Event: the company announced on April 23 that in 2021, the revenue was 476 million yuan (+ 12.42%), the net profit attributable to the parent company was 134 million yuan (+ 25.58%), the net profit not attributable to the parent company was 117 million yuan (+ 16.44%), the gross profit margin was 59.64% (- 4.43 PCTs), and the net profit margin was 28.33% (+ 3.03 PCTs). The revenue of 2022q1 was 12 million yuan (- 37.51%), and the net profit attributable to the parent company was -12 million yuan (a decrease of 13 million yuan compared with 2021q1).
Key investment points:
The company’s net profit margin reached a record high, and the revenue of satellite navigation business increased rapidly
In 2021, benefiting from the continuous development of business, the company’s operating revenue (476 million yuan, + 12.42%) increased steadily, and the company’s gross profit margin (59.64%, – 4.43 PCTs) decreased significantly, mainly due to the significant decline in the gross profit margin of satellite communication business. The net profit attributable to the parent company (134 million yuan, + 25.58%) still achieved rapid growth, and the net interest rate (28.33%, + 3.03pcts) increased to a record high. We believe that the main reasons include the significant decline of the company’s three fee rate (15.59%, – 3.02pcts) and the significant increase of government subsidies in the company’s other income (250802 million yuan, + 334.33%).
In 2022q1, the company’s operating revenue (RMB 12 million, – 37.51%) and net profit attributable to the parent (- RMB 12 million, a decrease of RMB 13 million compared with 2021q1) decreased significantly, mainly due to the decrease in order delivery of the company.
In terms of the two major businesses of the company’s satellite navigation products and satellite communication products:
① the business income of the company’s satellite navigation products (371 million yuan, + 23.18%) increased rapidly, and the gross profit margin (66.86%, – 0.55 PCTs) decreased slightly. However, the output of the company’s satellite navigation products (4502 sets / set, + 115.72%) and sales volume (3961 sets / set, + 120.79%) doubled, indicating that the structure and quantity of satellite navigation products delivered by the company have been adjusted, The net profit (137 million yuan, + 27.28%) of Mengsheng Technology (a wholly-owned subsidiary), the business entity of satellite navigation related products of the company, maintained a rapid growth.
② the company’s satellite communication product business income (105 million yuan, – 14.07%) declined, and the gross profit margin (34.17%, – 20.53pcts) decreased significantly. From the perspective of the sharp decline of the company’s overseas income (1714500 yuan, – 97.25%), it is mainly due to the significant decrease of the company’s overseas aviation satellite communication product income with high gross profit margin due to the covid-19 epidemic. However, it is worth noting that the overall revenue decline of the company’s satellite communication industry business is limited, and the product output (3374 sets / set, + 128.75%) and sales volume (3317 sets / set, + 105.39%) still doubled, indicating that the orders of Chinese shipboard products with low gross profit margin of the company increased significantly. From the perspective that the company’s satellite communication products are general stock products, and the inventory (672 sets / set, + 9.27%) has increased, the company has made some achievements in the expansion of satellite communication business in China.
In addition, through capital increase and equity transfer, the company has obtained the controlling equity of its subsidiary Nanjing Yinghuo. Nanjing Yinghuo focuses on the research and development and technical services of satellite communication and wireless ad hoc network communication system. The technical exchange will help the company realize the rapid evolution of products from antenna to terminal and system. At the same time, it will also help the company layout, develop satellite Internet and wireless ad hoc network markets and expand business areas, Further enhance market competitiveness and profitability. In 2021, Nanjing Yinghuo had a consolidated income of 31 million yuan and a net profit of 14 million yuan, with strong profitability. Referring to the compound growth rate of revenue and net profit of Nanjing fluorescent fire from 2018 to 2020, which is as high as 52.18% and 554.54%, we believe that Nanjing fluorescent fire is in a period of rapid growth of performance. According to the announcement of the company, the performance commitments of net profit attributable to the parent company of Nanjing Yinghuo from 2022 to 2023 are 14 million yuan and 18 million yuan respectively. We judge that there is strong business synergy between Nanjing Yinghuo and the company, which is also conducive to the expansion of the company’s communication business and the growth of the company’s revenue and net profit from 2022 to 2023.
To sum up, we believe that the growth of the company’s revenue and net profit in 2021 mainly depends on the rapid growth of satellite navigation business revenue with high gross profit margin. Although the customer structure of satellite communication products has changed significantly, the overseas satellite communication business with high gross profit margin has shrunk significantly and the gross profit margin has decreased significantly, due to the synergy brought by the acquisition of Nanjing Yinghuo and the expansion of the company’s China Spacesat Co.Ltd(600118) communication business, The decline of income should be controlled within 15%. In 2022q1, although the company’s revenue and net profit have declined to some extent, we believe that the impact of the delay in delivery confirmation caused by the epidemic on the performance is short-term. At the same time, we judge that with the mass production of Beidou’s third-generation upstream chips, the company’s satellite navigation products are expected to enjoy the benefits of Beidou’s third-generation replacement, and the satellite navigation business will be the core driving force for the rapid growth of the company’s revenue and profit in the next few years, The risk factors of satellite communication business have been released. With the scale effect brought by the increase of sales volume, the relevant revenue and gross profit margin are expected to recover gradually.
The scale of the company’s R & D personnel has expanded significantly, and the growth of inventory and other financial data highlights that the company has sufficient orders
In terms of expenses, in 2021, under the background of stable growth of the company’s revenue, the company’s three fee expense rate (15.59%, – 3.02 PCTs) decreased significantly, of which the sales expense rate (4.62%, – 3.07 PCTs) decreased significantly, mainly because the company did not sell products to some customers in 2021, so the after-sales service fee decreased significantly compared with the previous year and the sales expense decreased; The management expense ratio (13.08%, + 3.42pcts) increased to a certain extent, mainly due to the increase of the company’s employee salary, the company’s intermediary service fees, entertainment expenses, scrapping of current assets and other expenses; The financial expense ratio (- 2.10%, – 3.36 PCTs) decreased significantly, mainly due to the capital interest income in 2021. In addition, the company’s R & D expense ratio (13.15%, -0.04pcts) remains at a high level, mainly due to the increase of R & D tasks, the increase of input personnel and the increase of employee salary compared with the previous year. At the same time, the number of R & D personnel of the company (151, + 27.97%) is growing rapidly. We believe that the increase of R & D personnel and tasks indicates that the company’s product category expansion is expected to make new progress and will be gradually realized to the profit statement in the future.
In terms of cash flow, the company’s net cash flow from operating activities (78 million yuan, + 13.17%) increased steadily and continued to hit a record high, mainly due to the large increase in cash received from sales receipts this year compared with the previous year; The net cash flow from investment activities (249 million yuan, an increase of 974 million yuan over the end of 2020) increased significantly, mainly due to the purchase of financial products in the early stage of redemption this year; The net cash flow from financing activities (82 million yuan, – 91.95%) decreased significantly, mainly due to the increase in cash inflow from financing activities in 2020 caused by the raised funds received from the company’s listing in 2020.
In terms of other financial data, among the company’s inventory (168 million yuan, + 36.40%), the goods issued reached 34 million yuan, which is expected to be cashed in to the income statement in 2022. At the same time, the raw materials (79 million yuan, + 178.61%) doubled, mainly due to the increase of raw materials due to market orders. It also reflects that the company has sufficient orders at present, is actively purchasing and preparing goods, and is expected to be cashed in to the company’s performance in the future.
In addition, according to the company’s disclosure, among the funds raised by the company, 169 million yuan will be invested in the industrialization project of satellite navigation products and 176 million yuan will be used for the industrialization project of satellite communication products. The construction period of the project is two years. Among them, the satellite navigation product industrialization project will add 113 million yuan of annual revenue and 33 million yuan of total profit to the company in the year when it reaches production, and the satellite communication product industrialization project will add 220 million yuan of annual revenue and 31 million yuan of total profit to the company in the year when it reaches production. In total, the two will add 333 million yuan of new revenue and 64 million yuan of total profit, accounting for 69.99% and 41.42% of the company’s total revenue and profit in 2021 respectively.
Satellite navigation products are expected to constitute the main revenue growth point of the company in the 14th five year plan. At the same time, the company began to layout the field of electronic countermeasures
Since its establishment, the company has continued to focus on the R & D and manufacturing of relevant products in the field of satellite application technology. It is a high-tech enterprise engaged in the R & D, manufacturing, sales and technical services of satellite navigation and satellite communication terminal equipment. Its main products include satellite navigation, satellite communication and other products.
① satellite navigation products
The company’s satellite navigation products are mainly navigation terminal equipment and core component products based on Beidou satellite navigation system, such as satellite navigation receiver, components, special test equipment, etc. at present, they are mainly used in the field of national defense and military affairs. In 2021, the technical characteristics of the company’s satellite navigation products have been continuously improved, and the products have developed from module to complete machine support and then to system support. The supporting level of the company has been continuously improved, its competitive position and competitiveness have been continuously improved.
We believe that driven by the demand for “consumptive supplement of mature models of equipment” and “finalized mass production of new models of equipment”, the downstream demand for complete sets of weapons and equipment such as missiles in China is strong, and the supporting demand in the middle and upper reaches of the industrial chain is expected to maintain a high growth rate. In recent years, the company has finalized a number of satellite navigation products and entered the stage of mass production. We judge that the company’s satellite navigation products will be a strong revenue growth point during the 14th Five Year Plan period.
② satellite communication products
Satellite communication products are mainly satellite communication antennas and components, including mobile communication antennas, beacons and tracking receivers. At present, they are mainly used in maritime and aviation markets. At present, it has successfully developed mobile communication products covering multiple platforms on board, ship and vehicle, and covering mainstream communication bands such as L-band, S-band, Ku band and Ka band. It is one of the manufacturers with the most complete product series in the industry.
In the marine field, the company’s satellite communication products are mainly sold in China’s marine market, and the products sold abroad are mainly sporadic. Therefore, the company’s satellite communication products have not continuously participated in the competition in the overseas marine market; In the aviation field, the company’s airborne satellite communication products have not yet expanded in China’s civil aviation market, and can not enter the “front loading” market in the medium and short term, while China’s “rear loading” market is still in the experimental stage. The core components of the company’s satellite communication products are independently designed and produced. The products have the characteristics of high compatibility, integration and reliability of antenna system. The products can maintain accurate tracking of satellite signals, establish and maintain continuous and reliable satellite communication under extreme conditions, and have stable signal connection and good performance under various working conditions.
We believe that at present, the company’s satellite communication products are mainly domestic marine ship satellite communication terminal products and overseas aviation satellite communication products. Affected by the improvement and uncertainty of the epidemic situation in foreign countries, the revenue growth of the company’s satellite communication products in the short term may depend more on China’s marine ship satellite communication market. According to Zhang Yan, general manager of Sinosat, the China Satellite Communications Co.Ltd(601698) subsidiary of China’s high orbit satellite communication operator, in July 2021, China Satellite Communications Co.Ltd(601698) marine application integrated information service platform has realized Ka + Ku resource integration networking operation, and “haixingtong” app2 Version 0 has improved various application capabilities, and the number of online ships has exceeded 7000. In March 2020, Aerospace Hi-Tech Holding Group Co.Ltd(000901) group disclosed that Sinosat’s “starfish” business provides comprehensive satellite broadband communication services for 6000 China Cssc Holdings Limited(600150) and offshore platforms. It can be seen that the downstream demand of China’s marine satellite communication is growing and stable. The market demand of China’s aeronautical satellite communication is also expected to grow gradually after China Satellite Communications Co.Ltd(601698) completing the commercial first flight of domestic Ka broadband aircraft. Under the above situation of gradual growth in the downstream demand of China’s marine and aviation satellite communication, the domestic market demand of the company’s satellite communication terminal equipment is expected to grow gradually. In addition, if the overseas epidemic situation improves in the future, the performance of the company’s overseas satellite communication products is also expected to achieve restorative growth.
In addition, in 2021, the company has regarded electronic countermeasure as one of the strategic development directions of the company’s business. On the basis of continuously strengthening the investment in satellite navigation and satellite communication, the company has actively expanded the electronic countermeasure business and increased the resource investment in market development, technology development and talent introduction in the field of electronic countermeasure. In combination with the company’s current research projects with an investment scale of 125 million yuan, many electronic countermeasures projects are in the conclusion or engineering development stage. We judge that the company’s electronic countermeasures business is expected to bring new revenue and profit growth points to the company in the middle and later stage of the 14th five year plan.
The impact of shareholders’ reduction has subsided, and the company repurchases shares and implements equity incentive
In August 2021, the company announced that hongshenghengda mutual strength, the shareholder of the company, and hongshenghengda Jingcheng and hongshenghengda (the total shareholding ratio before the reduction was 10.41%); The shareholder blue ocean Tongchuang and its concerted actors blue ocean Fengying and blue ocean win-win (the total shareholding ratio before the reduction is 5.75%) plan to reduce the company’s shares through centralized bidding and block trading. As of the expiration of the reduction on March 12, 2022, the shareholding ratio of hongshenghengda mutual strength and its concerted actors hongshenghengda Jingcheng and hongshenghengda has decreased to 5.00%; The shareholding ratio of blue ocean co creation and its concerted actors blue ocean Fengying and blue ocean win-win decreased to 2.78%.
At the same time, on March 2, 2022, the company announced that it planned to use its own funds of 25-50 million yuan to buy back the company’s shares by means of centralized bidding transaction (calculated according to the upper limit of repurchase price of 70 yuan per share, accounting for 0.31% – 0.62% of the total share capital), and implement employee stock ownership plan or equity incentive at an appropriate time in the future (if it is not used up within 36 months after the implementation of repurchase, the unused part will be cancelled).
In April 2022, the company announced that it planned to implement equity incentive and granted 1.249 million restricted shares (1.09% of the total share capital) to 68 incentive objects (accounting for 16.63% of the total number of employees at the end of 2021), with the grant price of 23.28 yuan per share. Among them, 1.0400 shares were granted for the first time (accounting for 0.88% of the total share capital). In the performance assessment requirements, the company put forward the performance assessment objectives for 20222024: Taking the net profit in 2021 as the base, the net profit growth rate in 20222024 shall not be less than 40%, 90% and 150% (all considered based on the minimum objectives, that is, the year-on-year growth rate of net profit in the three years is 40.00%, 35.71% and 31.58% respectively).
To sum up, we believe that the impact of the reduction of shareholders’ holdings has subsided. The Company repurchased shares and carried out equity incentives. From the perspective of the company’s performance assessment requirements, the company is confident that the net profit of the company will maintain rapid growth during the 14th Five Year Plan period. The implementation of equity incentive is expected to further mobilize the enthusiasm of the company’s talent team, bind the personal interests of the core team with the interests of the company, and promote the company’s medium and long-term strategic objectives
