\u3000\u3000 China Zhenhua (Group) Science & Technology Co.Ltd(000733) (000733)
Event: the company released the performance forecast for 2021. It is estimated that the company will realize the net profit attributable to the parent company in 2021 (RMB 1.35 ~ 1.55 billion, year-on-year + 123% ~ 156%), deducting the net profit not attributable to the parent company (RMB 1.257 ~ 1.447 billion, year-on-year + 145% ~ 182%). In a single quarter, 2021q4 company realized net profit attributable to parent company (RMB 395 ~ 595 million, year-on-year + 60% ~ 141%, month on month – 10% ~ + 35%), deducting net profit not attributable to parent company (RMB 336 ~ 526 million, year-on-year + 65% ~ 158%, month on month – 22% ~ + 23%).
After restoring the one-time provision of 233 million yuan for out of plan expenses of retirees in 2021 and 246 million yuan for impairment of Shenzhen communication and Zhenhua new energy in 2020, the actual operating net profit of the company in 2021 (1.583 ~ 1.783 billion yuan, year-on-year + 86% ~ 109%). At present, the company takes the electronic components industry chain as its core business (the revenue of new electronic components in 2021h1 accounts for 99.40%), and its advantages continue to appear based on the positioning of China’s military electronics base. The performance of 2021q4 increased significantly year-on-year and maintained growth in the median month on month. On the one hand, it verified the high outlook of the military industry sector. On the other hand, it is also the embodiment of the improvement of governance structure brought by the gradual removal of the company’s historical burden and the implementation of equity incentive in 2019.
1) military passive components business: benefited from the large-scale loading of downstream weapons and equipment, the improvement of localization rate and the improvement of national defense informatization rate, and achieved sustained growth. For example, zhenhuafu, which is mainly engaged in inductors and filters, had a revenue CAGR of 27.91% and a net profit CAGR of 57.47% from 2018 to 2020, a revenue of + 18.68% and a net profit of + 84.60% year-on-year in 2021h1; Zhenhua Yunke, which is mainly engaged in resistance and capacitance, had a revenue CAGR of 16.59% and a net profit CAGR of 56.18% from 2018 to 2020, a revenue of + 39.06% and a net profit of + 63.83% in 2021h1. In addition, Zhenhua Xinyun plans to invest 160 million yuan to transform the plant to form an annual production capacity of 600 million chip capacitors. The construction period is 36 months. After completion, it can realize an annual new revenue of 230 million yuan and a net profit of 17 million yuan. The project will help the company strengthen the construction of civil high-end product production line and form a new performance growth pole.
2) more than passive components, the company’s layout in the semiconductor field is the main reason for its higher growth rate than that of the same industry. Zhenhua micro and Zhenhua Yongguang, subsidiaries of military integrated circuits, achieved rapid growth. Among them, Zhenhua micro is mainly engaged in hybrid integrated circuits, with a revenue of 329 million yuan in 2021h1, a year-on-year increase of + 93.54%, and a net profit of 115 million yuan, a year-on-year increase of + 140.81%; Zhenhua Yongguang is mainly engaged in semiconductor discrete devices, with a revenue of 498 million yuan in 2021h1, a year-on-year increase of + 35.65%, and a net profit of 168 million yuan, a year-on-year increase of + 115.40%.
3) high R & D investment brings strong expansion ability to the company. China Zhenhua (Group) Science & Technology Co.Ltd(000733) R & D investment remains a significant leader in the same industry. 2020 / 2021h1 China Zhenhua (Group) Science & Technology Co.Ltd(000733) , Zhuzhou Hongda Electronics Corp.Ltd(300726) , Fujian Torch Electron Technology Co.Ltd(603678) , Beijing Yuanliu Hongyuan Electronic Technology Co.Ltd(603267) and other R & D expenditures are RMB 373 / 1.75, 0.84/0.47, 0.68/0.40 and 0.45/0.24 billion respectively. China Zhenhua (Group) Science & Technology Co.Ltd(000733) has obvious leading advantages. Therefore, it continues to expand its categories in the fields of general components, semiconductor discrete devices, electromechanical components, integrated circuits, MLCC / LTCC series materials, electronic pastes and other electronic functional materials, The core competitiveness of enterprises has been continuously enhanced. We think this is the embodiment of the company’s strong expansion ability in performance.
4) continuous improvement of profitability. In the first three quarters of 2021, the company’s gross profit margin was 58.25%, a year-on-year increase of + 6.01pct; The net interest rate was 22.64%, with a year-on-year increase of + 11.06pct. The improvement of profitability mainly comes from the following aspects: first, the scale effect brought by the growth of sales of military electronic components; Second, the types of products have been continuously expanded, and the proportion of sales of high value-added products has increased.
Investment suggestion: Based on the performance forecast of 2021, we raised the company’s profit forecast. It is estimated that the net profit attributable to the parent company from 2021 to 2023 will be RMB 1.429 billion, 2.066 billion and 2.729 billion, corresponding to the current valuation levels of 44x, 30x and 23x. As the military electronics and semiconductor base of CEC, it has significant valuation advantages and maintains the “buy” rating.
Risk warning: CEC’s change in the company’s positioning; The development of military electronics and other businesses was less than expected.
