Ke Lu Electronics: Electric Matrion bottoming business more flowers

In 2010, the company signed 1.23 billion yuan new orders, an increase of 93.11% year-on-year, operating income of 930 million yuan, an increase of 113.87%, a net profit attributable to shareholders of the parent company of 131 million yuan, an increase of 67.30%, 0.50 per share yuan. The company's performance achieved high growth, basically in line with our previous expectations of 0.51 yuan.

"Industrial boom + business expansion", the company entered a rapid growth period

In 2010, the company's gradual growth from the previous three years has leapt into a rapid growth period. There are two major boosting factors behind it. The first is that in 2010, the grid companies started to build large-scale power consumption information collection systems, smart meters, and electricity. The rapid growth of automation industry, the company as a leader in the industry to fully benefit; second is the company for several years to maintain reserves, research and development of new business, in 2010 high-voltage converters, smart watch line and other new products growth.

The gross profit of the electricity meter bottomed out, and the industry’s competitive landscape has gradually stabilized

Due to the fierce competition in the industry in 2010, the gross profit rate of the company's electricity meter business dropped significantly from 41% in 2009 to 26%, which was the main reason that dragged down the overall gross profit margin of the company. At present, due to the gradual stabilization of the State Grid's unified tendering rules and the gradual shift towards non-price factors, on the one hand, the industry’s competitive pattern is stable and the “leadership prevails” situation continues. On the other hand, the industry has gradually shuffled its cards, and the weaker companies have begun to withdraw. We believe that the gross profit margin of the company's meter business has bottomed out and will rise slightly in the future.

The business blossoms, and the company's appearance has only just begun

The company adheres to the idea of ​​expanding its business in three dimensions, namely, exploring overseas, researching and developing new products, and innovating traditional products. The business has now blossomed. In terms of overseas markets, in 2010, the company further increased its efforts in development, significantly expanded its sales and R&D team and accelerated the distribution of overseas sales networks. In terms of new products, in 2010, the company’s new products such as inverters, photovoltaic inverters, and electric vehicle charging stations achieved breakthroughs in orders, while 1.5MW wind power converters were linked to the grid, and smart substations and distribution automation products completed R&D tests. . In terms of traditional products, in 2010, the company launched a new generation of upgraded products for standard instrumentation products, “Smart Meter Automatic Verification System”, which greatly increased the product's growth space and profitability.

Profit forecast and valuation

The company's 2011 orders plan is 2 billion yuan, which is an increase of 63% over the same period of last year. We expect that the company’s traditional smart metering and power automation business can still achieve about 50% growth, while the emerging business will maintain an increase of over 80%. It is expected that the company's EPS for 2011-2012 will be 0.97 and 1.34 yuan, corresponding to 29 and 21 times the closing price PE of April 7, respectively. Maintaining the investment rating of “strongly recommended”, we recommend focusing on the company.