20230403-招银国际-晶盛机电-300316.SZ-Raise_estimates_on_strong_materials_segment_5页_1mb

Zhejiang Jingsheng (300316 CH) Company Update Summary

Core Content

Zhejiang Jingsheng (JSG) reported strong financial performance in 2022, with a 71% YoY increase in net profit to RMB2.9bn, matching the pre-announced profit. The 4Q22 net profit also grew by 52% YoY to RMB915mn. As of end-2022, the company's total backlog reached RMB25.4bn, with 87% from solar and 13% from semiconductor, indicating good visibility into future revenue.

The materials segment experienced 2.7x YoY revenue growth to RMB1.46bn, contributing significantly to the overall growth. This segment's gross margin expanded by 14.5ppt YoY to 39%, partially offsetting the 1.8ppt contraction in the equipment segment's margin to 40.8%. The blended gross margin remained stable at 39.6% in 2022.

JSG's operating expenses were largely controlled, with SG&A ratio dropping to 3.1% and R&D expense ratio increasing to 7.5%, supporting continuous technological development. The company recognized RMB538mn in gains from government subsidies in 2022, reflecting its strong position in the market.

The contract liabilities surged 91% YoY to RMB9.47bn as of Dec 2022, indicating strong customer downpayment and bargaining power. However, operating cash flow declined by 24% YoY to RMB1.3bn, primarily due to a >RMB6bn increase in inventory. Most of the inventory (75%) was goods in transit, and the firm expects cash flow to improve in 1H23E.

Earnings Forecast and Valuation

CMB International Global Markets (CMBIGM) has raised its earnings forecast for 2023E and 2024E by 9% each, due to higher revenue and margin assumptions in the materials segment. The target price (TP) has been revised up to RMB99, based on a 33x 2023E P/E ratio and a 33% earnings growth in 2023E. The current share price is RMB65.29, and the TP implies a +52% upside.

Financial Highlights

• Revenue grew from RMB5,961mn in FY21A to RMB10,638mn in FY22A, with 33% growth in FY23E and 20% in FY24E.
• Net profit increased from RMB1,712mn in FY21A to RMB2,924mn in FY22A, with 34% growth in FY23E and 18% in FY24E.
• EPS rose from RMB1.33 to RMB2.25 in FY22A, and is forecasted to reach RMB4.21 in FY25E.
• BVPS increased from RMB5.31 to RMB17.22 in FY25E.
• ROE was 33.2% in FY22A, with a decline to 27.2% in FY25E.
• P/E ratio dropped from 49.1 to 15.5 in FY25E.
• P/B ratio decreased from 12.3 to 3.8 in FY25E.

Key Risks

• Slowdown in solar power capex
• Lower-than-expected gross margin
• Risk of semiconductor business expansion

Analyst Recommendations

• Maintain BUY rating
• Target Price: RMB99
• Current Price: RMB65.29
• Up/Downside: +52%

Share Performance

• 1-month absolute return: 1.9%
• 3-month absolute return: 2.7%
• 6-month absolute return: -3.4%

Shareholding Structure

• Shaoxing Shangyu Jingsheng: 47.4%
• QIU Minxiu: 2.97%
• CAO Jianwei: 2.72%

Stock Data

• Market Cap: RMB85,446mn
• Average 3-month turnover: RMB428.94mn
• 52-week High/Low: RMB85.91 / RMB42.20
• Total Issued Shares: 1,308mn

Financial Summary

Income Statement

• Revenue: RMB10,638mn in FY22A, expected to grow to RMB20,181mn in FY25E
• Gross profit: RMB4,218mn in FY22A, projected to reach RMB7,900mn in FY25E
• Net profit: RMB2,924mn in FY22A, expected to reach RMB5,500mn in FY25E

Cash Flow

• Operating cash flow: RMB1,314mn in FY22A, expected to improve to RMB4,526mn in FY25E
• Investing cash flow: Negative, with CAPEX increasing in FY22A
• Financing cash flow: Positive, with dividends paid increasing over time

Balance Sheet

• Total assets: RMB28,887mn in FY22A, expected to reach RMB47,174mn in FY25E
• Total liabilities: RMB17,674mn in FY22A, expected to increase to RMB24,069mn in FY25E
• Shareholders' fund: RMB10,773mn in FY22A, projected to reach RMB23,104mn in FY25E

Key Ratios

• Revenue mix: Equipment and service at 80%, Sapphire products at 14%, Others at 7%
• Gross margin: 39.6% in FY23E, expected to decline slightly to 39.1% in FY25E
• Core operating margin: 28.8% in FY23E, expected to increase to 29.3% in FY25E
• Net profit margin: 27.5% in FY22A, expected to remain stable at 27.3% in FY25E
• ROE: 33.2% in FY22A, expected to decline to 27.2% in FY25E
• ROA: 12.8% in FY22A, expected to increase to 12.7% in FY25E

Conclusion

JSG has demonstrated robust growth and strong performance in the materials segment, supported by a significant increase in backlog and government subsidies. Despite a temporary decline in operating cash flow, the firm is expected to see improvement in 2023. CMBIGM maintains a BUY rating with a RMB99 target price, reflecting confidence in its growth potential and margin improvements. However, the company faces certain risks, including potential slowdown in solar capex and the challenge of semiconductor business expansion.