Summary of contents: In 2011, net profit increased by 5% year-on-year to RMB 116 million, and revenue increased by 8% year-on-year to RMB 1.29 billion. The increase in revenue was mainly due to the recovery of small pumps in the export market. As the prices of raw materials (especially steel) and labor costs increased significantly during the period, in addition to the increase in depreciation for the expansion of industrial pumps, the company's gross profit margin decreased by 1.7 percentage points.
Since Leo has started the operation and marketing of industrial pumps, the management expenses and sales expenses have increased rapidly. The company's operating profit margin has dropped by 3.0 percentage points; the net profit rate has dropped by 0.3 percentage points year-on-year. With reference to the 30x 2012 forecast P/E, we maintain our target price of RMB 16.80 and maintain BUY on the stock.
Supporting Rating Points In the next 5-10 years, China will vigorously strengthen the construction of water infrastructure. The substantial increase in investment in water conservancy infrastructure construction is expected to lead to a significant increase in the sales of pump products, in particular the large water pump products developed by Leo.
The company has fully launched the marketing and technology introduction of industrial pump products. The goal of Leo is to strive to achieve a sales revenue of over 3 billion yuan in 2013 and a sales revenue of over 5 billion yuan in 2015.
The investment in China's water business investment has raised the company's brand and image to a higher level. With the company's development in the water pump market, we expect the company's industrial pump revenue in 2012 to approach 650 million yuan, an increase of more than 130% compared to 2011.
The major risks faced by ratings are slowing down in overseas markets.
Valuation Taking into account the company's rapid growth in water investment in the next few years, and the acquisition in 2012 will achieve a consolidated statement, we forecast the company's 2012 and 2013 earnings per share growth to be 53% and 23%, respectively. With reference to the 30x 2012 forward P/E, we maintain our target price of RMB 16.80 and maintain BUY on the stock.
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