JINGGONG STEEL BUILDING(600496)：1Q22 REVENUE GROWS RAPIDLY;DISTRIBUTED PV AND DIGITALIZATION BUILD COMPETENCE

2021 and 1Q22 results in line with our expectation
Jinggong Steel Building announced 2021 results: Revenue rose 31.8% YoY to Rmb15.1bn, and net profit increased 6.2% YoY to Rmb687mn. In 4Q21, revenue grew 27.5% YoY to Rmb4.75bn, and net profit declined 20.3% YoY to Rmb127mn.
The firm also announced 1Q22 results: In 1Q22, revenue grew 34.6% YoY to Rmb3.71bn, and net profit rose 35.1% YoY to Rmb179mn. The results are in line with its preannouncement and our expectation.
In 2021, GM edged down 2.3ppt YoY to 13.4%. GM of steel structure and engineering procurement construction (EPC) business dropped 2.5ppt and 1.8ppt YoY to 11.2% and 5.3% in 2021. The overall expense ratio decreased 0.9ppt YoY to 8.2%. Specifically, selling, G&A, R&D, and financing expense ratios fell 0.3ppt, 0.2ppt, 0.2ppt and 0.3ppt YoY. In 2021, the company’s net margin dropped 1.1ppt YoY to 4.5%. In 1Q22, the company’s GM dropped 1.8ppt YoY to 13.3%, expense ratio dropped 2.1ppt YoY to 8.5%, net margin was 4.8% (flat YoY).
In 2021, the firm’s net operating cash outflow reached Rmb243mn (vs. net operating cash inflow of Rmb424mn in 2020), mainly due to increased accounts receivable and contract assets. Its net cash outflow from investment activities increased Rmb285mn YoY to Rmb389mn in 2021. In 1Q22, net operating cash outflow decreased Rmb270mn to Rmb284mn.
Trends to watch
Quarterly revenue maintains high growth; upbeat on full-year orders growth. Revenue from industrial buildings, commercial buildings, public buildings, and EPC business increased 13.6%, 30.3%, 33.8%, and 78.7% YoY in 2021. The proportion of EPC business in the total revenue increased 7.1ppt YoY to 27.2%. We think the EPC business was the company’s main revenue growth driver in 2021. In 4Q21 and 1Q22, the company’s revenue grew by about 30% YoY, reflecting smooth execution of contracts. New contracts grew 13.3% YoY in 2021 and rose 34.0% YoY in 1Q22. Specifically, new contracts for industrial buildings increased 57.0% YoY, faster than new contracts for other types of building. We are optimistic that the company's revenue in 2021 will continue to grow, backed by ample backlog orders and supported by China’s efforts to stabilize economic growth.
Distributed PV and digitalization enhance competitiveness and profit growth. On March 16, the company announced the establishment of a subsidiary specialized in distributed PV EPC business. On March 30, it announced that it signed a strategic cooperation agreement with Risen Energy. The two sides will work together in building-integrated photovoltaics (BIPV) R&D, product procurement, business cooperation, and marketing. Also, they have jointly launched a BIPV roof product. We are optimistic that the company's distributed PV business will enhance the competitiveness and added-value of its EPC business. We also expect the company to gain additional earnings from promotion and sales of BIPV products. On April 12, the company announced that it will cooperate with PKPM to develop and promote building information modeling (BIM) system and other digital software. In our opinion, the company's digital transformation will likely improve its management efficiency while contributing additional profit.
Financials and valuation
Given the resurgence of the COVID-19 pandemic, we lower our 2022 net profit forecast 3% to Rmb852mn and introduce our 2023 net profit forecast of Rmb1.07bn. The stock is trading at 10x 2022e and 8x 2023e P/E. We maintain OUTPERFORM and our TP of Rmb5.25 (12x 2022e and 10x 2023e P/E), offering 25% upside.
Risks
Disappointing GM improvement; impact of COVID-19 resurgence in China worse than we expected.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。