CAPOL: Performance in line with expectations, prefabricated design orders maintain rapid growth

1H21 performance meets our expectations

The company announced 1H21 results: revenue of 1.05 billion yuan, +78.9% year-on-year, implied 2Q21 realized revenue of 685 million yuan, +72.6% year-on-year, +87.8% month-on-month. 1H21 achieved a net profit of 65 million yuan attributable to the parent, corresponding to an EPS of 0.33 yuan, +65.2% year-on-year, and the performance was in line with our expectations.

In 1H21, the company's gross profit margin decreased by 5.2ppt year-on-year to 21.2%, mainly due to the increase in the proportion of low gross profit margin EPC business income. The total period expense ratio of iH21 company decreased by 3.4ppt year-on-year to 13.30%, of which the management and R&D expense rate decreased by 2.4ppt and 1.3ppt year-on-year respectively; the net profit margin of 1H2i decreased by 0.5ppt year-on-year to 6.2% year-on-year. In 1H21, the company's net outflow of operating cash flow was 151 million yuan, an increase of 63 million yuan year-on-year; net investment cash inflow was 263 million yuan, an increase of 334 million yuan year-on-year.

Development Trend

Revenue from prefabricated design orders maintained rapid growth. In 1H21, the company achieved design revenue of 630 million yuan, a year-on-year increase of 30.7%; of which assembly design revenue was 210 million yuan, a year-on-year increase of 61.1%, achieving strong growth. In 1H21, the company's new contract value for architectural design business was 1.075 billion yuan, a year-on-year increase of 19%. Among them, the prefabricated design contract value was 368 million yuan, a year-on-year increase of 36%. We estimate that the company's annual design orders are expected to achieve a year-on-year growth of about 20%-30%, which will support future design revenue recognition. Staff size and per capita output value have steadily increased. In recent years, the company has paid attention to the recruitment of personnel and the improvement of personnel efficiency. As of the end of the first half of 2021, the company has 5,012 employees, and the production capacity of employees has been gradually released. Looking forward to the whole year, we expect that the number of employees and per capita output value are expected to grow steadily.

BIM continues to upgrade to support long-term growth. The company continues to upgrade and optimize the BIM positive design platform. In the second quarter, the company launched the iBIM platform V3.0 to gradually improve the efficiency of all-professional BIM forward design in construction, structure, water supply and drainage, HVAC, electrical, and assembly. We believe that in the long run, the company's design business operation and management model is expected to be transformed and upgraded through the application of information tools such as BIM, so as to support the improvement of business efficiency, reduce the management radius, and promote long-term growth. It is recommended to continue to pay attention to the progress of related businesses.

Profit forecast and valuation

Maintain the profit forecast for 2021 and 2022 unchanged. The current stock price corresponds to a P/E ratio of 14.1x/10.6x in 2021/2022. Maintain the outperform industry rating and target price of 29.00 yuan, corresponding to a price-earnings ratio of 25.0x/18.9x, with 77.5% upside potential compared with the current stock price.

Risk

Orders grew less than expected, and the progress of BIM R&D and application was lower than expected.