Soochow Securities: Gave Tianzheng Electric an overweight rating with a target price of 13.7 yuan

2021-11-01South Wu Securities Co., Ltd. Zeng Duohong, Chai Jiahui, Xie Zhedong conducted a study on Tianzheng Electric and released a research report "2021 Third Quarter Review: Bulk Price Increase Superimposed Channel Price Reduction, Operating Profit Is Less Than Expected", this report gives an overweight rating to Tianzheng Electric, believing that its target price is 13.70 yuan, the current stock price is 10.8 yuan, and the expected increase is 26.85%.

Tianzheng Electric(605066)

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2021Q3 revenue -5% year-on-year, profit -87% year-on-year, less than market expectations. The company released the third quarter report of 2021, the company achieved operating income of 2.358 billion yuan in 2021Q1-3, an increase of 32.22%; achieved net profit attributable to the mother of 157 million yuan, down 12.95% year-on-year. Among them, 2021Q3 achieved operating income of 693 million yuan, down 4.64% year-on-year, down 29.44% month-on-month; achieved net profit attributable to the mother of 0.12 billion yuan, down 86.68% and down 88.98% month-on-month, and the performance was less than market expectations.

Due to the increase in raw material prices and the intensification of peer competition, the gross profit margin fell more year-on-year, and the net profit margin fell more due to the larger investment in research and development and sales. 2021Q1-3 gross profit margin of 24.15%, the same decline of 5.23pct, 2021Q3 gross margin of 24.90%, the same decline of 4.35pct; gross margin decline reasons: 1) revenue side: the industry's leading enterprises to reduce terminal sales prices, the company's distribution channels strategically reduced prices to cope; 2) the cost of raw materials on the cost side continued to be high, while the cost of low-voltage electrical appliances mainly from copper, silver, plastics and other bulk. 2021Q1-3 attributable net profit margin was 6.65%, down 3.45pct year-on-year, Q3 attributable net profit margin was 1.70%, down 10.44pct year-on-year, in addition to the decline in gross profit margin, the company's sales, research and development expenses (including equity payment expenses) against the trend of increasing investment.

Affected by peer competition, distribution channels have depressed prices and slowed down; the "loose order" markets such as direct sales channels and factories and electricity have also been under pressure, and real estate has been mainly replaced by stocks, and the base of new energy and communications has been small and steadily advancing. In 2021, we expect "direct sales + distribution" revenue to achieve nearly 30% year-on-year growth, and maintain about 20% growth in the next 2-3 years. Sub-channel point of view: 1) distribution channels, we estimate that 2021Q3 fell more than the previous month, mainly the industry leader 2021H1 two price increases, 2021Q3 through dealer rebates and other ways to reduce the terminal price, in order to narrow the price gap with competitors, seize market share. Affected by this, peers more price cuts to cope, the cost side of raw material prices are still high, so profits are damaged; 2) direct sales channels, disk factories, power customers have the "class distribution" attribute, because the proportion of disk factories in direct sales is high, so affected by the aforementioned factories, direct sales channel profits are also under pressure; although the real estate policy has suppressed the newly started area, but the real estate low-voltage electrical appliances are still dominated by stock substitution, we estimate that the year-on-year growth in 2021Q3 is still relatively fast; new energy, communications and other emerging areas are bound to Trina Solar, China Telecom and other head customers supply, large customer orders gradually landed, in addition to the company actively explore distributed photovoltaic, IDC distribution room and other incremental market opportunities. At present, the base of emerging areas is small and it is expected to grow structurally in the future.

Profit Forecast and Investment Rating: Due to the impact of rising raw material prices and intensified competition, we have downgraded the company's net profit attributable to the mother for 2021-23 by 222 million yuan (-103 million yuan), 325 million yuan (-141 million yuan) and 497 million yuan (-160 million yuan), respectively, -10%, +46% and +53% year-on-year, corresponding to EPS of 0.55/0.81/1.23 yuan / share, corresponding to the current PE of 20x, 13x and 9x, respectively, respectively, The target price of 13.7 yuan was given, corresponding to 17 times PE in 2022, and the rating was downgraded to "overweight".

Risk warning: macroeconomic downturn, intensified competition, etc

A total of 5 institutions have given ratings and 5 buy ratings in the last 90 days; the average target price of institutions in the past 90 days has been 22.81; the Securities Star Valuation Analysis Tool shows that Tianzheng Electric (605066) good company rating is 3 stars, good price rating is 2 stars, and valuation comprehensive rating is 2.5 stars.