\u3000\u3 China Vanke Co.Ltd(000002) 236 Zhejiang Dahua Technology Co.Ltd(002236) )
Event: Zhejiang Dahua Technology Co.Ltd(002236) 2021, the company achieved an operating revenue of 32.835 billion yuan, a year-on-year increase of 24.07%; The net profit attributable to the parent company was 3.378 billion yuan, a year-on-year decrease of 13.44%; Net profit deducted from non parent company was RMB 3.103 billion, with a year-on-year increase of 13.47%. In the first quarter of 2022, the company realized an operating revenue of 5.848 billion yuan, a year-on-year increase of 14.34%; The net profit attributable to the parent company was 356 million yuan, a year-on-year increase of 2.30%, and the net profit not attributable to the parent company was 346 million yuan, a year-on-year increase of 11.00%.
The innovative business grew rapidly, and China Mobile’s stake helped the business expansion. During the reporting period, the company’s core business smart IOT products and solutions achieved a revenue of 28.041 billion yuan, a year-on-year increase of 21.72%; Among them, the software business revenue was about 1.601 billion yuan, a year-on-year increase of 16.29%. As a company level strategic focus, software business has opened thousands of software business interfaces and built platforms with more than 200 partners. At present, the volume of innovative business is still small. During the reporting period, the operating revenue was 2.848 billion yuan, a year-on-year increase of 61.70%. The innovation sector includes machine vision and mobile Siasun Robot&Automation Co.Ltd(300024) , smart life, automotive electronics, UAV and smart storage. The innovation business will continue to extend in the future and become a strong driving force for the rapid growth of the company’s future performance. In terms of subregions, the revenue of domestic business reached 19.347 billion yuan, a year-on-year increase of 21.07%; Among them, the revenue of tog, tob business and other businesses (smart home and channel business) were 5.851 billion yuan, 8.622 billion yuan and 4.872 billion yuan respectively, with a year-on-year increase of 3.17%, 27.61% and 37.22%. The company insists on focusing on the two major business areas of enterprises and cities. Tob covers all industries in an all-round way, deeply explores the needs of enterprise digitization and intelligence, has insight into more than 3000 business segmentation scenarios, has developed more than 1000 business components, and has formed more than 300 industry solutions in total. In terms of tog, the company has accumulated more than 1000 business models and 200 scenario schemes to fully enable the effective implementation of “observation, management, prevention and treatment” of the city. In addition, in April 2022, China Mobile cooperated with Dahua through strategic shareholding. After the completion of fixed growth in the future, China Mobile will become the second largest shareholder of the company. The participation of China Mobile not only plays a good complementary role with the company’s business and channels, but also helps to promote the business expansion of both sides.
Overseas business continued to recover and grew steadily in 2022q1. With the gradual liberalization of the control of overseas epidemic, overseas business also began to recover. In 2021, the company’s overseas revenue was about 13.489 billion yuan, a year-on-year increase of 28.63%. By the end of 2021, the company had added more than 2600 Dahua element / image stores overseas, with a total of 5000 stores, an increase of 112% year-on-year in 2020. Since the beginning of 2022, despite the severe environmental situation affected by the epidemic and Russian events, the company’s overall operation has been stable, with a revenue of 5.847 billion yuan, a year-on-year increase of 14.34%. Under the global business strategy, the company will copy the application mode of Chinese government business and enterprise business overseas to further enhance the competitiveness in the international market.
The tight supply chain situation is expected to gradually ease. In 2021, the company’s comprehensive gross profit margin was 38.91%, with a year-on-year decrease of 3.79pct. The decline of gross profit is closely related to the rise in the price of raw materials and the development of new products, but at the same time, the adjustment of freight in accounting treatment also had a certain impact on last year’s gross profit margin. Therefore, the gross profit margin of the company remains stable under the same caliber. In order to meet the normal supply of raw materials, the company’s short-term cash flow increased by 19.75% in 2021, resulting in a large decline of 19.75% in 2021. At present, the important chip supply in the upstream of the company shows a trend of maintaining stability, which is expected to play a positive role in improving gross profit and cash flow. During the reporting period, the company’s net interest rate was 10.39%, a year-on-year decrease of 4.48pct. The main factors for the decline of net interest rate include: (1) zero investment loss of 323 million yuan, credit impairment loss of 745 million yuan and exchange loss of 306 million yuan; (2) Due to the chip disposal income of 962 million yuan in the third quarter of 2020, the base in 2020 is relatively high.
The overall control of the expense side is good, and the expense rate during the period is about 28.39%, with a year-on-year decrease of 3.3pct; Among them, administrative expenses and R & D expenses increased significantly, with a year-on-year increase of 21.64% and 15.16% respectively. In order to continuously improve the competitiveness of the industry, the company has always maintained large-scale R & D investment. In 2021, the R & D cost of the company was 3.452 billion yuan, and the R & D cost rate was 10.51%; 11388 R & D personnel, an increase of 2390 over 2020. At the same time, in order to build a strong talent team for sustainable development, the company announced the equity incentive scheme with the largest number of incentive shares and the widest coverage since its listing in the reporting period. Overall, with the gradual reduction of supply chain pressure in the future, the company’s profitability will pick up.
Investment rating and suggestions: for the first time, give buy rating. As the world’s leading intelligent IOT solution provider and operator service provider with video as the core, Zhejiang Dahua Technology Co.Ltd(002236) by building two core technology systems of aiot and IOT digital intelligence platform, continuously consolidate its comprehensive strength in hardware, software, cloud and big data, and continue to expand application scenarios to broaden its growth boundary and enrich customer resources. Under the background of the vigorous development of digital technologies such as artificial intelligence, big data and Internet of things, the company will continue to lead the smart IOT industry and improve its industry position in the international market. We estimate that the net profit of the company from 2022 to 2024 will be 4.051 billion yuan, 4.920 billion yuan and 5.801 billion yuan respectively, and the corresponding valuation of the current market value will be 12.56 times, 10.34 times and 8.77 times respectively, giving the company a buy rating.
Risk tips: (1) the global epidemic continues and the downstream demand is less than expected; (2) The supply chain of the industry continues to be tense; (3) Innovative business and new market expansion were not as expected.
