1H22 earnings in line with our expectation

Yijiahe Technology announced 1H22 earnings: Revenue grew 38.25% YoY to Rmb484mn but net profit attributable to shareholders fell 14.23% YoY to Rmb79mn in 1H22. In 2Q22, revenue grew 82.69% YoY and 50.34% QoQ to Rmb291mn and its net profit attributable to shareholders rose 22.47% YoY and 14.90% QoQ to Rmb42mn. The company’s earnings are in line with our expectation.

Trends to watch

We believe revenue grew considerably in 2Q22, rising 82.69% YoY and 50.34% QoQ; earnings of robot products remained stable; changes in product mix weighed on overall gross profit margin. Yijiahe had relatively abundant orders on hand in early 2022 （Rmb0.8-0.9bn）。 In 1Q22, progress of implementation, testing and acceptance of the company’s projects slowed down due to the impact from COVID-19, and the company’s revenue remained roughly flat YoY at Rmb193mn. In 2Q22, the company accelerated the progress of its projects and we estimate its revenue grew 82.69% YoY and 50.34% QoQ to Rmb291mn, prompting its revenue to grow 38.25% YoY in 1H22. The company’s overall gross profit margin fell 16.77ppt YoY to 42.10% in 1H22, and stood at 53.75% in 1Q22 and 34.35% in 2Q22. The company’s overall gross profit margin fell 19.40ppt QoQ in 2Q22 mainly due to changes in the product mix. The company recognized some revenue from an intelligent power distribution room integration project with low gross profit margin during 2Q22. Excluding this impact, we estimate the gross profit margin of the company’s robot business at around 50%, with earnings of this main business remaining stable.

Operational efficiency improving; overall expense ratio falling 14ppt YoY in 1H22. Yijiahe’s selling expense ratio, G&A expense ratio, and R&D expense ratios fell 1.74ppt, 1.30ppt, and 11.26ppt YoY to 5.89%, 11.25%, and 11.74% in 1H22, but its financial expense ratio rose 0.29ppt YoY to 2.73%, with the overall expense ratio falling 14ppt YoY. In particular, the company’s R&D expense ratio declined because Tuodao Medical （a subsidiary） was no longer included in the company’s consolidated financial statements. In 1H22, Yijiahe’s net profit margin fell 9.97ppt YoY to 16.30%, mainly due to factors such as a decline in the company’s gross profit margin and losses at Tuodao Medical （included in Yijiahe’s investment income）。

Several new products launched in 1H22; optimistic about growth potential of platform-based special-purpose robot leader. In 1H22, Yijiahe launched a number of new products, including: 1） an equipment health management system that provides 24-hour monitoring and early warning of faults in electrical equipment, reflecting the company's efforts to expand its presence from mobile monitoring and testing products to fixed-site monitoring and testing products; 2） an intelligent shared electric vehicle charger system that has shaken up the traditional charger installation model （e.g., it is economical, safe to use and easy to install, and construction costs are relatively low） - we think the company can rapidly promote the product in new residential areas, as it has launched pilot projects in some cities; and 3） a three-dimensional inspection system that integrates indoor and outdoor inspection robots, drones, high-definition video cameras, infrared thermal imaging cameras, and voiceprint equipment to build a multi-latitude, comprehensive, and three-dimensional inspection platform. The company has received orders for the product.

Financials and valuation

We keep our 2022 and 2023 earnings forecasts unchanged. The stock is trading at 22.4x 2022e and 17.3x 2023e P/E. We maintain an OUTPERFORM rating and our target price of Rmb65 （23.0x 2022e and 17.7x 2023e P/E）， offering 2.4% upside.

Risks

Disappointing investment in smart power grids; overreliance on some downstream customers; more intense market competition.