JADE BIRD FIRE(002960)IN-DEPTH TRACKING REPORT：VENTURING INTO INDUSTRIAL FIRE PROTECTION

　　Core views:
　　Jade Bird Fire is a leader in fire protection electronics in China. With its strong R&D capabilities, comprehensive product lines and superior marketing network, the Company may continue to expand its market share in traditional fire alarm products in the future, and its smart emergency evacuation business is likely to maintain strong growth. At the same time, the Company's self-developed chips have a wide margin of capabilities, which has allowed it to successfully expand into the broad industrial fire protection business. We are optimistic about the Company's medium- and long-term earnings growth potential and reiterate the "BUY" rating with a target price of Rmb31 on 25x 2022E PE.
　　Abstract:
　　Company Profile: 1) Operating performance: Jade Bird Fire recorded robust earnings growth, and the revenue structure has been further diversified. It achieved operating revenue of Rmb3.86bn (up by 53.0% YoY) in 2021, implying a 2016-2021 CAGR of 24.7%. Its attributable net profit (ANP) reached Rmb.053bn (up by 23.2%) in 2021, implying a 2016-2021 CAGR of 13.3%%. At the same time, the Company's revenue structure has been further diversified. The revenue contribution from the fire alarm business decreased from 84.9% in 2016 to 54.0% in 2021, while that from the evacuation and automatic fire extinguishing business increased from 10.6% in 2016 to 30.4% in 2021. 2) Business expansion: Jade Bird Fire launched frequent M&As and has a stable distribution system. In the field of fire alarms, it acquired a French company Finsecur in 2020. In the field of emergency evacuation, it acquired Zuoxiang Lighting in 2021. With the sustained promotion of the “multi-brand and globalization” strategy, Jade Bird Fire so far has a total of 72 dealers across China (up by 16 compared with 2019) with a stable distribution network.
　　Traditional fire protection: As an industry leader, Jade Bird Fire is likely to fully benefit from industry consolidation. (1) Fire alarms: With the robust growth and the consolidation of the existing market, Jade Bird Fire’s leading market share is likely to expand further. The overall market size for fire alarms is about Rmb20bn-30bn, with an annualized growth rate at about 5%-10%. According to our industry research, there were more than 400 fire alarm companies in China in 2018, and there are still about 150 left at this point. We expect that the exit of brands from the market and the market share concentration towards sector leaders will continue. The operating revenue of Jade Bird Fire’s fire alarm business posted a 2017-2021 CAGR of 14.1%, and its market share recorded stable growth. 2) Emergency evacuation: We see exponential growth in the industry driven by policy support. A series of policies have pushed the emergency evacuation market to boom. According to the data from industry portal HC360 (fire.hc360.com), there are nearly 700 manufacturers in the industry at this point. With the further standardization of the industry, leading manufacturers will accelerate industry consolidation. Jade Bird Fire’s emergency evacuation business has achieved exponential growth in recent years, with operating revenue posting a CAGR of 114.2% over 2017-2021.
　　Industrial fire protection: Jade Bird Fire has been actively building a presence in industrial fire protection, creating upside surprises. 1) Traditional industrial fire protection: Traditional industrial fire protection has high entry barriers and high profit margins with vast growth headroom for import substitution. Traditional industrial fire alarm market has a market size of over Rmb10bn in China. Foreign brands represented by Honeywell and Siemens occupy a dominant market share in China. At present, Chinese companies mainly include Aegis and Action. The gross profit margin (GPM) of the two companies maintains at about 60%, but the revenue size is modest. With the continuous development, accumulation and innovation of Chinese fire alarm enterprises, they have built differentiated competitive advantage compared with foreign brands, alongside the ongoing import substitution in industrial fire protection. Jade Bird Fire has been actively building a presence in industrial fire protection. 2) Energy storage fire protection: With the impending demand surge, there is an urgency to improve industry standards. Under the background of “carbon peak and carbon neutrality”, the installed capacity of battery energy storage has grown rapidly. Due to the high safety hazards of lithium batteries, energy storage fire protection is becoming particularly important. According to our estimates, the total market size for energy storage fire protection will reach Rmb17.12bn in the next five years, and yet relevant industry standards still need to be improved. Jade Bird Fire’s all-in-one solution perfectly meets the needs of energy storage fire protection, which may launch the Company’s second growth curve.
　　Potential risks: Intensified market competition; downside risks to macroeconomic growth; the Company’s new business expansion missing expectations; potential losses caused by non-performing loans and accounts receivables and inventories; goodwill impairment following the Company's M&As; sharp fluctuations in raw material prices.
　　Investment recommendation: Jade Bird Fire is a leader in fire protection electronics in China. With its strong R&D capabilities, comprehensive product lines and superior marketing network, the Company may continue to expand its market share in traditional fire alarm products in the future, and its smart emergency evacuation business is likely to maintain strong growth. At the same time, the Company's self-developed chips have a wide margin of capabilities, which has allowed it to successfully expand into the broad industrial fire protection business. We are optimistic about the Company's medium- and long-term earnings growth potential, and we maintain our 2022E-24E net profit forecasts of Rmb610mn/770mn/930mn. We select Oriental Yuhong (002271.SZ), the downstream real estate-related waterproof leader, and Envicool (002837.SZ), the temperature control leader with great growth potential, as comparable companies. With the average comps valuation of 35x 2022E PE based on Wind consensus estimates as a reference, and considering the sustained modest revenue contribution from Jade Bird Fire’s energy storage fire protection business, we assign 25x 2022E PE to derive a target price of Rmb31 and reiterate the "BUY" rating.
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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。