Electric Power Research Institute (300215): the inflection point of project transferring to fixed assets to suppress profits is coming
The project under construction was transferred to fixed assets to suppress the performance, and the company maintained the "buy" rating of 1-3Q20. The company realized revenue/net profit attributable to the parent company/net profit deducted not attributable to the parent company of 500 million yuan/0.6 million yuan, - 13%/- 51%/- 73% year-on-year. The net profit attributable to the parent company was in line with the median performance forecast (60 million yuan), and the non recurring profits and losses were mainly government subsidies of 31.11 million yuan; 3Q20 achieved revenue/net profit attributable to the parent company/net profit attributable to the parent company deducted by 190.03/030 million yuan, - 11%/- 46%/- 44% year on year. The transfer of projects under construction to fixed assets pushed up depreciation and financial expenses, which affected 3Q20's net profit attributable to the parent company to decline significantly. We adjusted the 2020-2022 net profit attributable to the parent company forecast to be 120 million yuan/260 million yuan, corresponding to EPS of 0.16/0.34/0.44 yuan. We gave the 2021 35x target PE, target price of 11.80 yuan, and maintained the "buy" rating.
The transfer of projects under construction to fixed assets pushed up depreciation and financial expenses, which affected the decline of 3Q20's net profit attributable to the parent company. 3Q20's operating income fell by 11% to 190 million yuan year on year, and its gross profit margin fell by 7.3 pct to 46.4% year on year. This was mainly because the 1200KV 150KA project was completed in November 19 and transferred to fixed assets, leading to a significant increase in depreciation expenses year on year; The period expense rate was+1.6pct to 37.6% year on year, of which the financial expense rate was+3.3pct year on year, because the projects under construction were gradually transferred to fixed assets, the interest expense of project loans was increased, and the sales/management/R&D expense rate was flat/-0.8pct/-0.9pct year on year, respectively, and the company's cost and expense control effect was apparent; Changes in fair value/other income (increase in government subsidies received) amounted to - 689/+4.72 million yuan year on year, and the net profit attributable to the parent company was - 46% to 30 million yuan year on year.
High investment is expected to drive high profit growth. In the future, it is expected to benefit from counter cyclical regulation+ultra-high voltage acceleration. The company's high investment in the past few years has helped it achieve several world firsts in the detection capability in the electrical field. The implementation of major projects into fixed assets has led to an increase in depreciation costs, making the company's net profit rate fluctuate significantly, but EBITDA has maintained a rapid growth. In 2016-2019, CAGR reached 26%, And the EBITDA profit margin increased from 51% to 63%. In 2020, the State Grid significantly increased its investment. In July, the State Grid (unlisted) said at the mid year work conference that it would increase its fixed investment to 460 billion yuan, 13% more than the planned investment at the beginning of the year. It is expected to accelerate the construction and transformation of ultra-high voltage supporting projects, and the company, as a leader in the field of high and low voltage electrical equipment testing in China, is expected to fully benefit.
The company implemented repurchase to boost market confidence and maintain the "buy in" rating company's approval of the repurchase proposal in August. Based on the confidence and value recognition of future development, the company plans to buy back shares at a price of 50 million to 100 million yuan, with the upper limit of the repurchase price of 9.70 yuan/share. Later, the company will implement equity incentive plans or employee stock ownership plans or cancel them according to law. As of September 30, the total amount of repurchase was 1.75 million yuan accumulatively. Considering the year-on-year decline of the company's revenue in the third quarter and the significant increase of costs and financial expenses, we adjusted the forecast of net profit attributable to the parent company for 20-22 years to 120/260/340 million yuan (the former value is 170/280/340 million yuan), and the corresponding EPS is 0.16/0.34/0.44 yuan (the former value is 0.22/0.37/0.45 yuan). With reference to the 21 year consensus expected PE average of comparable companies, the company is a leader in the detection of high and low voltage electrical appliances, Leading in technology and qualification, 35x target PE will be given for 21 years, and the target price will be 11.80 yuan (12.89 yuan before), maintaining "buy in".
Risk tip: The revenue is lower than expected, and the rate of increase of profit margin is lower than expected.
