2021 results in line with our forecast

Yijiahe Technology announced its 2021 and 1Q22 results. Revenue and attributable net profit rose 27.78% and 43.59% YoY to Rmb1.29bn and Rmb483mn in 2021, and grew 23.74% and 46.91% YoY to Rmb592mn and Rmb257mn, in line with our expectations.

In 1Q22, revenue edged up 1.23% YoY to Rmb193mn, and attributable net profit fell 36.2% YoY to Rmb37mn, mainly dragged by declines in investment returns and non-operating income.

Trends to watch

2021 revenue up 27.78% YoY driven by product upgrades, widening of downstream applications, and regional market expansion. In addition to upgrading existing products, Yijiahe rolled out new products such as smart operation robot and smart fire-fighting robot, creating additional growth drivers. We estimate the firm acquired nearly Rmb400mn in orders for its new smart operation robot in 2021. By segment, revenue from the power and non-power sectors increased 26.31% and 309.62% YoY to Rmb1.15bn and Rmb15mn as Yijiahe proactively explored applications in new sectors such as rail transit and power generation. The company also stepped up expansion into regional markets such as Sichuan, Chongqing, Gansu, and Yunnan, with revenue from southern, southwest, and northwest China rising 55%, 450%, and 120% YoY, respectively.

2021 earnings solid; backlog orders ample. In 2021, blended gross margin edged down 0.65ppt YoY to 59.92%, and net margin surged 414ppt YoY to 37.60%. Meanwhile, overall expense ratio picked up 0.28ppt YoY to 28.91%. Yijjiahe continued to undergo market expansion, and it secured Rmb1.00bn in new orders in 2021. By end-2021, the firm had Rmb393mn in orders awaiting to be delivered, indicating ample backlog orders.

1Q22 net margin dragged by declines in investment return and non-operating income. In 1Q22, gross margin and net margin dropped 1.22ppt and 11.14ppt YoY to 53.75% and 18.99%, while overall expense ratio picked up 0.11ppt YoY to 38.37%. We believe the lower margins were mainly because: 1) investment return from subsidiary Tuodao tumbled Rmb11.43mn YoY to -Rmb348mn, dragging net margin down by nearly 6ppt; and 2) non-operating income, mostly government subsidies, dipped Rmb25.36mn YoY to Rmb6.38mn, dragging net margin down by nearly 13ppt. We think the decline in net margin in 1Q22 was temporary, and we remain upbeat on the firm’s steady growth in 2022. Over the long term, we expect Yijiahe to benefit from accelerated penetration of power robots in smart power grids.

Financials and valuation

We maintain our 2022 and 2023 earnings forecasts. The stock is trading at 15.4x 2022e P/E and 11.8x 2023e P/E. We maintain OUTPERFORM and cut our TP by 24.0% to Rmb65 (22.8x 2022e P/E and 17.6x 2023e P/E), offering 48.2% upside from the current price.

Risks

Disappointing investment in smart power grids; reliance on individual downstream clients; fiercer market competition.