FRIENDESS ELECTRONIC(688188):1–3Q21 RESULTS SLIGHTLY BEAT;PRODUCT MIX UPGRADING TO CONTINUE

类别:公司 机构:中国国际金融股份有限公司 研究员:Xianfan CHEN/Zhonghai YU/Jian DING 日期:2021-10-31

1-3Q21 results beat our expectations

    Friendess Electronic announced its 1-3Q21 results: Revenue rose 83% YoY in 1-3Q21 to Rmb706mn and 46% YoY in 3Q21 to Rmb240mn; and attributable net profit increased 67% YoY in 1-3Q21 to Rmb462mn. The firm’s results slightly beat our expectations on smooth expansion of new product categories.

    Intelligent cutting heads business booming; ample backlog orders.

    The firm’s revenue recorded rapid growth in 3Q21, thanks to the continuous growth in medium-power laser cutting control system orders and board-control system orders, as well as breakthroughs in its intelligent cutting heads business. Sales volume of the firm’s intelligent cutting heads reached 221 units as of 2020 and 568 units as of 1H21, with an order backlog of 139 units and framework agreement orders of 685 units.

    Recently, the firm announced it plans to raise about Rmb1bn to invest in an intelligent cutting heads capacity expansion project, an intelligent welding robot, and an ultra-high precision integrated drive and control system R&D project. Looking ahead, we expect the firm’s intelligent cutting heads business to maintain rapid growth given its ample backlog orders and smooth expansion of production capacity.

    Gross margin edged down; cost control effective. In 3Q21, the firm’s blended gross margin dropped 1.6ppt YoY to 80.5%, which we attribute to changes in its product mix - increasing sales of low-GM products dragged down the firm’s blended profit margin. In 1-3Q21, the firm’s expense ratio dropped 8.8ppt YoY to 13.7%. Specifically, G&A expense ratio fell 9ppt YoY and financial expense ratio declined 2.6ppt YoY. R&D expense ratio rose 2.2ppt YoY to 8.9% due to the firm’s increased R&D spending.

    Trends to watch Friendess to become platform-based industrial control company on back of strong technological capabilities. The firm offers a wide variety of products covering the entire laser-cutting process, from computer-aided design (CAD) and computer-aided manufacturing (CAM) to numerical control (NC), sensor and hardware. It strives to provide world-leading all-in-one integrated solutions. We note the firm is seeking new growth drivers by expanding its presence in segments such as ultrafast laser control systems and intelligent welding. We are upbeat on Friendess’s potential to become a platform-based laser control technology company.

    Financials and valuation

    Considering smooth progress of the firm’s new product expansion, we raise our 2021 net profit forecast 3.4% to Rmb607mn, and maintain our 2022 earnings forecast unchanged, implying EPS of Rmb6.05 in 2021 and Rmb8.03 in 2022. The stock is trading at 50.1x 2022e P/E. We maintain OUTPERFORM and our target price of Rmb480, implying 59.7x 2022e P/E and offering 19.1% upside.

    Risks

    Weaker-than-expected end-market demand; expansion of the high-power laser cutting control business disappoints; slower-than-expected project construction; declining profitability due to business expansion; shortage of raw materials.