South China Pumps Quarterly Review: Layout of Water Pumps, Expansion of New Capacity

On October 22, 2011, South Pump announced the third quarter report: during the reporting period, operating income was 251 million yuan, up 33.84% year-on-year; total profit was 34.842 million yuan, up 40.03% year-on-year; net profit attributable to owners of parent company 27.965 million yuan, an increase of 37.71%.

comment:

Sales volume has increased significantly and future capacity expansion is guaranteed.

At present, the company has a production capacity of 400,000 sets of stainless steel stamping centrifugal welding pumps. Its sales volume is expected to exceed 400,000 units this year, and its annual operating income will increase by more than 40%. The company plans to invest 350 million yuan to build an annual output of 300,000 sets of stainless steel centrifugal pump production base, the production capacity is expected to increase significantly in the next 2 years, but overall there is still a big gap between the world's leading pump production capacity. In terms of product structure, in the future, the company is expected to realize the layout in the field of water pumps (hydroelectric power station pumps and agricultural pumps) by virtue of the Changhe water pump, and it will help the company participate in the construction of water conservancy projects.

The gross profit margin remained stable throughout the year and sales expenses increased significantly.

In the third quarter, the company's single quarter gross margin reached 37.83%. Gross profit margin is expected to stay above 31% for the whole year, mainly due to the fact that the company's product price hikes at the beginning of the year have eased the pressure of raw material price increases and the product sales structure has improved. In the report period, the sales expenses increased by 88.59% compared with the same period of last year. Except for the increase in sales volume in the current period, the company also increased the investment and construction of the sales network, resulting in a relatively large increase in related sales expenses.

Earnings Forecast The company's 2011-13 EPS is expected to be 0.69, 0.91, and 1.16 yuan, respectively. The corresponding PE for the current stock price is 23.1X, 17.6X, and 13.9X, respectively, and maintains the "Recommended" rating.

risk warning:

1) Intensified competition in the industry; 2) Sharp fluctuations in raw material prices.