Cinda Securities: Give watson a buy rating

2021-10-26Cinda Securities Co., Ltd. Li Yuanyuan, Ji Xiaofei conducted research on Watson Technology and released a research report "High Base Maintains Rapid Growth, New Materials Lead Broad Prospects", this report gives a buy rating to Watson Technology, and the current stock price is 35.38 yuan.

Watson Technology(605180)

Event: In the first three quarters of 2021, the company achieved revenue of 494 million yuan, an increase of 110.09%, a net profit attributable to the mother of 150 million yuan, an increase of 113.72%, a net profit of 148 million yuan, a co-increase of 113.46%, and an EPS of 1.69 yuan. The company's downstream outdoor sports industry boom continued to be high, the performance of the performance is eye-catching, of which 21Q3 company achieved revenue of 159 million yuan, a same increase of 54.81%, to achieve a net profit attributable to the mother of 47.9384 million yuan, a same increase of 51.39%, to achieve a deduction of non-net profit of 46.0004 million yuan, a same increase of 44.84%, under the influence of a high base growth rate has slowed down.

Comments:

Under the background of high base, sales volume maintained rapid growth, and prices were basically flat year-on-year. The company's main products airtight drawing products downstream are mainly used in paddling boards, gymnastic mats, yoga mats and other sporting goods, in recent years, European and American consumer demand for paddling boards has grown rapidly, especially after the outbreak of outdoor consumption after the epidemic, driving the company's airtight drawing products sales increased year-on-year, 21Q3 company in the context of high base still achieved rapid growth. In terms of price, the price of the company's airtight drawing products remained basically stable year-on-year, and the profitability of the company's products was still strong under the high prosperity.

Gross margin, expense ratio, and net operating cash flow decreased year-on-year. 1) In the first three quarters of 2021, the company's gross profit margin fell by 1.88 PCT to 41.58%, affected by the increase in the price of upstream raw materials, and the gross profit margin of 21Q3 also fell by 5.42 PCT to 38.40%, a relatively large decline. 2) In the first three quarters of 2021, the company's sales, management, research and development, financial expense ratio increased by -0.48 PCT, -0.95PCT, 0.04PCT, -0.58 PCT to 0.51%, 2.55%, 3.13%, -1.21%, revenue growth scale effect appeared, the expense ratio decreased year-on-year during the period, the company attached importance to research and development, research and development expense ratio is high and stable. 3) In the first three quarters of 2021, the company's net cash flow from operating activities decreased by 97.79% to 827,700 yuan, mainly due to a significant year-on-year increase in expenditure on purchasing raw materials.

The outdoor track has a large space for development, and the application field is expected to continue to expand. As an emerging water sports equipment, inflatable paddle board is welcomed by overseas consumers, and its convenience, low threshold and entertainment are expected to promote the continuous growth of the scale of the user population, the development space of terminal demand is large, and the long-term growth sustainability is better. The company continues to expand its production capacity after listing, and the application scope of airtight drawing as a new material is expected to continue to expand, driving the overall performance to maintain rapid growth.

Earnings Forecast and Investment Rating: The company's performance continues to grow rapidly, and we maintain our EPS forecast for 2021-23 at 1.95/2.46/3.14 yuan, with the current share price corresponding to 19.71 times PE in 21 years. We are optimistic about the company's short-term performance is explosive, the long-term track development space is large, the current valuation is at a low level, maintaining the "buy" rating.

Risk factors: The growth rate of terminal demand has fallen sharply, industry competition has intensified, and the progress of capacity release has not met expectations

A total of 5 institutions have given ratings and 5 buy ratings in the last 90 days; the target average price of institutions in the past 90 days is 49.88; the Securities Star Valuation Analysis Tool shows that Watson Technology (605180) has a good company rating of 3 stars, a good price rating of 1 star, and a valuation comprehensive rating of 2 stars.