What's new

On February 21, 2022, Yijiahe Technology (Yijiahe) announced its 2022 stock option and restricted equity incentive plan (draft), which proposes granting a total of 3.94mn shares (1.91% of the total shares) to the management, other key managerial, technical and sales personnel.

Comments

Equity incentives to motivate management and core employees. The incentive plan covers 176 employees of Yiijahe, accounting for 26.83% of the its total staff at end-2020, including 7 directors and senior executives and 166 key managerial, technical and sales personnel. The plan proposes granting a total of 3.94mn shares, including 1.91mn stock options (0.92% of the total shares) with an exercise price of Rmb52.38/sh and 2.03mn restricted shares (0.98% of the total shares) at a price of Rmb32.74/sh. According to company, the incentive plan will lead to a total of Rmb80.29mn amortized expenses, with Rmb37.91mn for 2022, Rmb27.01mn for 2023, Rmb13.45mn for 2024 and Rmb1.91mn for 2025.

Earnings requirements and employee performance evaluation to create long-term incentives. According to the corporate performance goal set in the incentive plan, revenue growth should be no less than 60% in 2022, 90% in 2023 and 120% in 2024 compared with 2020, implying a CAGR of no less than 22% over 2020-2024. We believe the plan effectively aligns the interests of the company and its shareholders with those of its core teams and sets a higher goal compared with the performance assessment criteria established in the 2019 incentive plan (which requires that the annual growth rate of revenue and net profit be no less than 30% over 2019-2021). Meanwhile, it also sets up an employee performance appraisal system to motivate employees. We believe the equity incentive plan will fully motivate the company’s management and core employees, boosting its healthy and rapid growth.

Focusing on technology and distribution channels as core competitive advantages; building platform ecosystem to drive growth. As the construction of new power systems accelerates the development of smart grids, traditional systems for power operation maintenance and management can no longer meet the challenges posed by fast-growing smart grid technology. Therefore, we believe the combination of robot and power technologies would be the trend, and the domestic power system robot market has great potential to grow given the low penetration rate of power system robots in China. As a leader supplier of power system robots with a market share of 22%, Yijiahe has made continuous efforts in building its marketing network and expanding its nationwide presence thanks to its competitive advantages in technology, brand and client base. We estimate the revenue from its power system robot business will grow at a CAGR of 34.5% over 2020-2023. In addition, Yijiahe positions itself as a platform-based special service robot company. We expect it to leverage its technological expertise and extensive experience to offer more categories of special service robots, such as operational robots and fire-fighting robots, exploring new drivers for growth.

Valuation and recommendation

We leave our EPS forecasts unchanged at Rmb2.2 for 2021, Rmb2.9 for 2022 and Rmb3.7 for 2023 with a CAGR of 30.9%. The stock is trading at 23x 2022e P/E. Considering the company’s positive medium- to long-term growth outlook boosted by its equity incentive plan, we raise our TP by 20% to Rmb85.50, implying 30x 2022e P/E and offering 30.8% upside.

Risks

Smart grid investment disappoints; a concentrated base of downstream clients; intensifying competition.