(Report Producer/Author: Huaxi Securities Yu Hang)
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China's leading supplier of overall solutions for urban landscape lighting.
Founded in 1999, the company is mainly engaged in landscape lighting construction, design and service.
In 2013, the company was identified as a high-tech enterprise in Shanghai and obtained the construction Grade A qualification, followed by the listing of the national small and medium-sized enterprise share transfer system in 2014, the design Grade A qualification in 2017, the "Top 100 Private Service Enterprises in Shanghai" in 2020, and passed the main board listing review committee, and in 2021 the company was officially listed on the main board of the Shanghai Stock Exchange.
At present, the company has the highest level of qualification in the industry, and the project has won many honors such as China Construction Engineering Luban Award, Shanghai Magnolia Award, Zhongzhao Lighting Award, etc., and is a leading provider of overall solutions for urban landscape lighting in China.
The actual controllers of the company are Sun Kaijun and Sun Jianming, and as of the 2021 interim report, the two directly and indirectly hold about 44.3% of the company's equity.
In 2016-2018, the qualification was upgraded and the development accelerated.
From 2016 to 2018, the company has successively obtained the highest qualification level in the landscape lighting industry: "First-class qualification for professional contracting of urban and road lighting engineering" and "Special Grade A qualification for lighting engineering design", so it has the ability to undertake a variety of large and medium-sized landscape lighting engineering projects such as municipal engineering and commercial at the same time, and has won the bid for large-scale projects such as ordos Dongshengcheng District Project and Shanghai Huangpu District Binjiang Project, and the development has accelerated, and the company's overall revenue/attributable net profit has increased from 101 million yuan in 2015/ $16 million increased to $612/$120 million.
From 2019 to 2020, due to cautious operation and the impact of the epidemic, the growth rate has slowed down.
In 2019, the company won the bid for a number of large and medium-sized projects such as the night view transformation of Kashgar Ancient City, due to the large number of orders in hand, in order to ensure the progress of the project, quality considerations, the company did not carry out personnel expansion (the number of employees increased by 3 people in the whole year), and due to the increase in the base, the growth rate of revenue/attributable net profit in 2019 slowed down to 13.3%/21.0%.
In 2020, due to the impact of the epidemic, the company's construction and revenue recognition progress has slowed down, and revenue and profit have declined by a certain extent.
Gradually transform the whole life cycle service provider of the city, and the development after listing is expected to press the acceleration button.
We believe that landscape lighting has the characteristics of high gross profit, high customer stickiness and weak cyclicality, and with the economic recovery after the epidemic, the industry demand is expected to gradually expand, and resources are also expected to be concentrated in head enterprises.
The company is also expected to take landscape lighting as the starting point, through the cultural tourism economic IP construction and smart city infrastructure & operation and maintenance, and gradually transform the urban life cycle service provider, so that the company's development after listing, press the acceleration button.
<h1 class="pgc-h-arrow-right" data-track="55" >2. Landscape lighting: High-quality tracks are expanding, and resources are concentrated to head enterprises </h1>
Landscape lighting industry is located in the middle of the urban economic industry chain, the upstream is mainly semiconductors, lighting equipment and other suppliers, the main downstream customers are the ruling departments, construction units and commercial blocks, landscape area operating enterprises, the main content includes planning and design, engineering construction and post-management operation and maintenance services.
According to the data disclosed in the company's prospectus, the current industry scale is 100-110 billion yuan. We believe that landscape lighting has the characteristics of high profit, high viscosity and weak cycle, which is a high-quality track, and the future industry will show a trend of expansion, and resources will also be concentrated to the head enterprises, so the head enterprises will benefit the core.
2.1. High profit, high viscosity, weak cycle of high quality track
First of all, landscape lighting has a high gross profit margin and customer stickiness.
The investment amount of landscape lighting is larger, usually the initial investment amount of the lighting system in the benchmarking area of the first-tier city is more than 1 billion yuan, and the initial investment amount of the corresponding system in the benchmarking area of the third- and fourth-tier cities is also more than 200-300 million yuan, and once there is an error in the design and construction process, it will adversely affect the image of the city and the normal use, resulting in a higher cost of trial and error for customers, usually more willing to cooperate with the head landscape lighting service provider, and the selection of partners also pays more attention to past project experience. Therefore, the bargaining power and profit level of the head landscape lighting service provider are strong, and the customer stickiness is also high.
According to Wind data, the head landscape lighting enterprises can maintain a gross profit margin of more than 40% and a net profit margin of more than 15%, which is close to the high-profit detection industry and higher than the design industry with the same good profit situation.
Secondly, the periodicity of landscape lighting is relatively weak.
Landscape lighting works usually have a 2-year warranty period, which needs to be maintained every year after the warranty period, and overhauled at a certain age (usually 8-10 years).
Taking Shanghai As an example, the "Guiding Opinions on Strengthening the Centralized Control of Landscape Lighting in Shanghai" issued by the Shanghai Municipal Bureau of Greening and City Appearance pointed out:
1) After the expiration of the warranty period, according to the actual facility situation, the first year according to the project cost of 4-6% maintenance, the future year by year to increase by 1%, to 12% cap,
2) The service life of landscape lighting facilities is generally 8 years, depending on the overhaul and maintenance.
Because the industry customers are more sticky, and the builder is usually more familiar with the facility, the maintenance party and the builder are usually a company, which means that once a new project is signed, it can generate stable income at least 8-10 years, so the cyclicality of the industry is relatively weak.
2.2. Trend judgment: industry expansion + resources to the head
According to the company's prospectus data, the current landscape lighting market size is about 100-110 billion yuan, and we believe that the industry will show a stable expansion trend in the future.
Driving factor one: the construction of characteristic towns drives demand of more than 20 billion yuan per year.
With the advancement of urbanization, the state attaches great importance to the construction of characteristic towns. According to the company's prospectus, according to incomplete statistics, the total planning target of characteristic towns has exceeded 2400, and the investment amount of a single characteristic town is between 1 billion and 10 billion yuan.
According to the annual construction of 300 characteristic towns, each characteristic town investment of 3 billion yuan, of which landscape lighting accounted for 2.5% of the investment estimate, then the construction of characteristic towns every year to drive the demand for new landscape lighting 22.5 billion yuan, if you consider the maintenance and renewal needs, the actual boost is greater.
Driver two: night economy development.
After the epidemic, China's economic development and transformation pressure increased, out of the need to stimulate consumption, more and more regions began to develop the night economy, such as Shanghai opened the 66 nightlife festival, Suzhou opened the "Gusu 8:30", etc., thus driving the demand for landscape lighting.
We believe that the demand for landscape lighting industry will maintain a compound growth rate of more than 10% in the next 2-3 years, and the industry space is expected to exceed 150 billion yuan in 2023.
According to the company's prospectus, the company's annual reports and forward-looking data, the current landscape lighting engineering industry presents a more decentralized pattern, the first echelon of enterprises mainly include Leyard, space-time technology, Roman shares, Zhouming technology, etc., the revenue scale is 5-1 billion yuan (corresponding to the market share of less than 1%), and shows a certain regional characteristics; and we believe that the future industry resources will be concentrated to the head enterprises.
First of all, as landscape lighting is more culturally creative in the future, its quality requirements and trial and error costs will continue to increase.
In the past, China's economic development was more extensive, and many landscape lighting projects only met the needs of basic lighting facilities, while the shaping and improvement of the city image was mainly concentrated in first- and second-tier cities.
In the future, with the improvement of urban image and the development of economic needs, it is expected that more third- and fourth-tier cities will apply landscape lighting to the creation of city business cards, cultural IP and tourist attractions; therefore, we judge that the quality requirements of downstream customers will be further improved, and we will also pay more attention to the past project qualifications, and the core benefits of head landscape lighting service enterprises.
Secondly, the volume of a single project is expected to expand in the future, and the comprehensive requirements for suppliers will be improved.
In the past, because many landscape projects were only to meet the needs of basic lighting, the coverage of many projects was limited to a few streets, and the overall design and construction capabilities of service providers were not high.
In the future, with the more use of landscape lighting for the creation of city business cards and cultural IP, landscape lighting projects are expected to carry out more overall design and construction of the area; therefore, we judge that the scale of a single project of landscape lighting in the future is expected to gradually expand, and the requirements for the comprehensive design and construction integration capabilities of service providers will also be higher, and the lack of design capabilities, and the living space of small enterprises that can only carry out EPC construction for small projects will be gradually compressed.
Finally, with the promotion of smart cities and energy conservation and emission reduction, the requirements for the whole life cycle operation and maintenance and unified management of the landscape lighting industry have increased.
Taking smart street lights as an example, it is necessary to realize digital and Internet of Things remote control in the operation cycle, and realize hierarchical management while achieving light and shadow effects to cope with the necessary energy consumption control needs.
Therefore, we believe that the leading enterprises with strong O&M capabilities and rich data reserves will gradually reflect their advantages in operation and maintenance and unified management, and their market share is expected to be further improved.
<h1 class="pgc-h-arrow-right" data-track="79" >3.Roman shares: transformation of urban life cycle service providers, development accelerated </h1>
The company has been deeply engaged in the industry for more than 20 years, and has become a leading enterprise in the landscape lighting industry, accumulating certain advantages in many aspects, including:
Qualification advantages:
According to the prospectus, as of the end of August 2020, among the thousands of enterprises in the landscape lighting industry, there are only 133 enterprises with "urban and road lighting engineering professional contracting level one" and "lighting engineering design special grade A" double A qualifications, and the company is one of them, and the qualification is in the leading position in the industry.
Advantages of design and construction operation and maintenance integration: The company is one of the very few enterprises in the industry that can provide design, construction, operation and maintenance integration services at the same time, and acquired Shanghai Jiaguangju Intelligent Technology Co., Ltd. in 2015 to further strengthen the company's remote fault early warning and remote data management capabilities.
According to Wind data, the company's landscape lighting design and landscape lighting operation and maintenance revenue account for about 3-4% of the total revenue, which is higher than that of comparable companies.
Advantages of undertaking large and medium-sized projects:
The company has undertaken a number of landmark landscape lighting projects in Shanghai, won the industry and international top awards, and formed a good reputation.
Profitability advantages:
The advantages of qualification, integrated service competitiveness and project are ultimately reflected in the company's profitability advantages.
Since 2017, the company's net profit margin has generally remained close to or more than 20%, significantly higher than that of its peers; in 2020, the per capita income generated was about 2.73 million yuan, the highest among comparable companies, reflecting the advantages of operating efficiency.
Technical advantages:
As of the 2021 interim report, the company has accumulated 50 patents and 55 software works.
In addition, the company has also cooperated with universities to set up an "academician expert workstation" to cooperate in the research and development of landscape lighting technology. We believe that while the supply and demand pattern of the industry is improving, the company will gradually transform into a city life cycle service provider, and at the same time promote regional expansion, and the development is expected to press the acceleration button.
3.1. Transform the whole life cycle service provider of the city and improve the closed loop
The company's current business mainly includes landscape lighting engineering, design and other services (operation and maintenance), of which landscape lighting engineering is the main source of the company's revenue, accounting for more than 90% of the total revenue.
We believe that while laying out the landscape design business earlier, the company will actively increase the size of big data, VR/AR and new energy-related businesses, and the overall competitiveness will be further enhanced in the future.
Lay out the design business earlier and seize the opportunity in the night tour and cultural tourism market.
The company's layout of the design end is earlier. In 2005, the company established Shanghai Preson New Space Design Co., Ltd., mainly engaged in urban landscape design business.
The early layout of the design business makes the company have the industry's leading integrated service capabilities, and also helps the company seize the opportunity in the cultural tourism market.
Taking the company's Kashgar Ancient City project as an example, the company used light and shadow as the carrier to design a night tour scenic spot of "cultural tourism scene + immersive interaction + vacation consumption", taking an important step out of Shanghai and enhancing the company's popularity nationwide.
Increase the application of big data, expand VR/AR, and strengthen the strength of urban operation and maintenance and cultural scene production.
In 2015, the company acquired Shanghai Jiaguangju Intelligent Technology Co., Ltd., further strengthening the company's big data capabilities, which greatly enhanced the company's capabilities in operation and maintenance. At present, the company's intelligent lighting control has realized remote control, visual fabrication and data preservation and backup, helping the company to further expand the intelligent lighting business.
According to the company's official website information, the company's smart light pole has completed the intelligent city operation and maintenance projects such as the Pentagon Field Intelligent Micro Hub, the North Bund Super i-shanghai Information Kiosk, and the EVCARD Intelligent Service Station, which has laid a good foundation for the company to participate in smart city operation and maintenance on a larger scale in the future from the perspectives of operation and maintenance project experience and big data accumulation.
In addition, according to the announcement of the company's performance briefing, the company is currently continuing to strengthen its VR/AR layout, jointly building digital cultural tourism experience projects with partners, judging that the company's competitiveness in smart operation and maintenance and cultural tourism night tours will be further enhanced, and related business revenue is expected to accelerate.
Gradually lay out new energy and improve the closed loop of urban life cycle services.
In 2020, the company set up Shanghai Quanze New Energy Technology Co., Ltd., gradually laying out the field of new energy and committing to the low-carbon development of the city.
According to the announcement of the company's performance briefing, the company has been actively exploring the development and utilization of clean energy, promoting the promotion and application of green clean energy in the field of lighting, and will consider carrying out power generation and storage in the field of solar energy, wind energy and other clean energy in the future.
We believe that under the background of increasing pressure on energy conservation and emission reduction, the demand for green power generation and hierarchical management of smart street lamps will gradually increase in the future. The company's layout in new energy is expected to further improve the closed loop of urban life cycle services, thereby enhancing its competitiveness.
We believe that the improvement of service closed-loop improvement for the company's competitiveness will be mainly reflected in two aspects.
First of all, with the improvement of the company's integrated life cycle service capabilities, its ability to take orders in key customers is expected to further increase, and the revenue growth rate is expected to rise;
Secondly, according to the company's prospectus disclosure data, the current government and state-owned enterprises are the company's main customers, contributing more than 90% of the company's revenue, and with the improvement of the service closed loop, the company is expected to get more commercial enterprise customers through the cultural tourism IP as the entry point, thereby strengthening its own C-end layout.
3.2. Accelerated regional expansion
Due to the existence of a certain regionality in the past industry, the company's past business is mainly concentrated in Jiangsu, Zhejiang and Shanghai, according to the company's annual report and prospectus disclosure data, east China revenue usually accounts for more than 70% of the company's total revenue.
In May 2021, the company established Chengdu Roman Smart City Technology Co., Ltd. in Sichuan, mainly engaged in creative content services, 5G communication technology services and smart city construction operations.
We believe that the next step of the company will be to carry out the construction of smart city and cultural tourism IP around the Sichuan-Chongqing Economic Zone, and gradually improve the national layout.
3.3. Operational efficiency is expected to continue to improve
We believe that the improvement of the service closed loop and regional expansion will not only further enhance the company's order and revenue scale, but also improve the overall operating efficiency of the company.
First of all, the company's per capita revenue generation is expected to continue to increase.
In a single project, the design and operation and maintenance is mainly completed by information means, so the number of people is relatively fixed, with the future of a single project volume is expected to increase, the company's design and operation and maintenance of the revenue efficiency is expected to improve.
At the same time, with the accumulation of large-scale project experience and data, the efficiency of the company's construction is also expected to continue to rise (for example, pre-planning, basic lighting, effect drainage lighting, interactive experience points and other products can be modularized to improve the landing speed), thereby further improving per capita income generation.
From 2015 to 2019, the company's per capita revenue generation increased from 800,000 yuan to 3.57 million yuan (affected by the epidemic in 2020, it has decreased), which we believe has partially reflected the above trend.
Second, we believe that the company's expense ratio is expected to maintain a downward trend.
According to the company's prospectus disclosure, the main composition of the company's sales expenses is the salary of employees and project maintenance premiums, in the future, as the industry resources are concentrated to the head, we judge that we can pay more attention to the experience of major projects of suppliers, thereby reducing the company's marketing costs.
At the same time, as the scale of revenue expands, we judge that the company's management expense ratio will also be diluted. From 2015 to 2020, the company's sales/management expense ratio decreased from 2.7%/13.4% to 1.5%/4.1%, and the above trend is still expected to continue.
3.4. Cash flow risk is controllable
In recent years, the company's receivables and bills have increased from 86.3 million yuan in 2016 to about 500 million yuan in 2020.
However, according to the company's prospectus, 80% of the company's accounts receivable are within 1 year, and the annual operating net cash flow is positive, so we believe that the growth of the company's accounts receivable is mainly due to the company's operating income growth, and there is no need to worry too much about the future:
First of all, the financial situation of the government in the company's key operating areas is generally good.
According to Wind data, the company's current focus on the Jiangsu and Zhejiang regions and the newly entered Chengdu area public financial self-sufficiency rate of more than 65% (according to public revenue / public finance), in the forefront of the country, the government financial situation and payment capacity is generally good.
Secondly, with the expansion of the company's scale, the company's bargaining power has gradually increased.
From 2016 to 2020, the company's accounts payable turnover days increased from 125.5 days to 319.6 days, and the net business cycle decreased from 95.8 days to 73.4 days, reflecting that the company can better pass on part of the accounts receivable risk upstream.
Finally, we believe that the situation of local government new infrastructure funds will improve overall.
In 2019H2, the state issued new capital regulations, stipulating that special bonds can be directly used as project capital.
In the past, PPP in local government projects was the main business model, in which private enterprises were the main body of financing, with high capital costs and increased their own operating risks; under the new capital regulations, local governments could directly issue special bonds for financing, and then subcontract the project to private enterprises.
Since local governments usually have a wider range of financing channels than private enterprises, we believe that the overall capital situation of local governments will improve under the new capital regulations, and the overall leverage of projects will be reduced.
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revenue:
We expect that from 2021 to 2023, the company's landscape lighting engineering business revenue will maintain a growth rate of about 25%, and due to the company's gradual transformation of the urban life cycle integrated service provider, landscape lighting design and landscape lighting operation and maintenance service business revenue growth rate is higher than the engineering business.
Expense Rate:
It is expected that the gross profit margin of each business will remain stable overall, and the expense ratio will maintain a slight downward trend due to the decline in marketing costs and the reflection of scale effects during the period.
Impairment:
From a cautious point of view, the amount of impairment of hypothetical accounts receivable has also expanded due to the expansion of the scale of revenue.
Based on the above assumptions, it is expected that from 2021 to 2023, the company's revenue will be 7.38/9.28/1.220 billion yuan, an increase of 22.9%/25.7%/31.4% year-on-year, and the net profit attributable to the mother will be 1.40/1.82/242 million yuan, an increase of 30.1%/29.3%/33.0% year-on-year, and EPS1.62/2.10/2.79 yuan, corresponding to the closing price of 23.50 yuan on October 25, which is 14.50/11.21/8.43x.
We use pe and PB valuation methods to value the company.
We selected three construction service companies of China National Inspection Group, Jin Chengxin and Sujiaoke as comparable companies, and the average valuation of the three comparable companies was 20.6x2022E PE and 4.29x PB.
Considering that the current scale of the company is smaller than the above three companies, out of a cautious point of view, the company is given a certain valuation discount, and the valuation is carried out according to 15x2022E PE and 3.5xPB, and the corresponding valuation is 31.50/49.84 yuan respectively.
Since the company is currently in a high-growth stage of profitability, we believe that pe valuation can better reflect the intrinsic value of the company, so we chose 31.50 yuan of PE valuation method as the target price.
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Weaker than expected government financial resources:
If the government's financial resources are affected by controlled leverage beyond expectations, industry demand, corporate orders and payment collections may be lower than expected.
Industry consolidation is lower than expected:
If industry consolidation is slower than expected, the company's market share may increase at a slower rate than we expected.
Systemic risk:
Macroeconomic, trade frictions and other factors may affect the overall valuation and trend of A-shares.
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