Company Profile

Shandong Luyitong Intelligent Electric PLC manufactures industrial and commercial electric apparatusand equipment. (Source: Reuters)

Investment Highlights

After acquisition of civil electric company, businesses of Shandong Luyitong Intlgnt Eletric (thecompany) will be transformed in an all-round way.

In December 2017, Shandong Luyitong Intlgnt Eletric acquired Sunfly Holdings Co., LTD, which ismainly engaged in civil electrical complete equipment, LED lighting products and smart home. Afterthe consolidation in January 2018, the company’s main business has expanded into the civil field fromindustrial fields. Sunfly Holdings Co., LTD has become the main revenue source of the company at thisstage.

In the short term, complete electrical equipment is delivered before the completion of propertyproject, so the revenue of the company is highly related to the completed construction area of CountryGarden (2007.HK).

The Growth of completed construction area of Country Garden (2007.HK) usually lags behind itsoperating revenue growth by 1 or 2 years. For example, the year-on-year growth rate of its totaloperating revenue reached a peak in 2012, while the completed area reached a peak two years later.

During 2016-2018, its growth rate of the total operating revenue entered a rising trend, and thus weexpect the peak of completion construction area will also arrive in 2020-2022. In this way, thedemand for complete electrical equipment of Shandong Luyitong Intlgnt Eletric will also grow rapidly.

In the long run, the company is speeding up the development of customers in other real estateenterprises and industries other than real estate. At present, the company has achieved initial results.

At the same time, the company continues to develop LED lighting and smart community businessesbased on real estate customers. It is expected that the "customer + product" two-wheel driving forcewill bring sustainable growth momentum to the company.

Earnings forecast and investment recommendationThe company has a mature electrical complete equipment industry chain, covering both industrialand civil areas, and it shows growth points in a short and long term.

We estimate the company’s net profit attributable to shareholders to be CNY 724/871/1,065 mn for　　year 20/21/22, implying an EPS of CNY 1.45/1.74/2.13 and a P/E ratio of 9.7/8.0/6.6x (based on theclosing price of June 3rd, 2020). As the company's present P/E ratio is less than 10, its value isunderestimated. We initiate coverage of the company with an “Outperform” rating.

Potential risks: slower-than-expected delivery and construction of property projects;slower-than-expected expansion of new customersThis English translation of the original Chinese version issued byIndustrial Securities on June 3, 2020 is for information purpose only. In case of a discrepancy, theChinese original will prevail.