2021-10-26 Tang Shuangshuang of Huaxi Securities Co., Ltd. conducted a research on Huasheng Technology and issued a research report, "it is not weak in the off-season, and the gross profit margin decreases due to the rise in the price of raw materials." this report gives a buy rating to Watson Technology and believes that its target price is 49.09. the current share price is 38.49 yuan, with an expected increase of 27.54%.

Watson Technology (605180)
Event Overview
In the first three quarters of 21 years, the company realized income / return net profit / deducted non-net profit of 4.94 yuan 1.50 / 148 million yuan, up 110.09% on a year-on-year increase of 113.72% on a year-on-year basis and 113.46% on 21Q3 on a year-on-year basis. The revenue / return net profit / deduction non-net profit of 21Q3 was 1.59soybean 0.48 / 46 million yuan respectively, an increase of 54.81% on 51.39% on a year-on-year basis, which was in line with expectations.
Analysis and judgment:
According to our analysis, traditionally, Q3 is the off-season, but because big customers generally place orders half a year in advance, the distinction between the company's off-peak season gradually decreases. Thanks to the downstream demand, 21Q3 has sufficient orders, and with the company's investment project adding 4.5 million square meters of brushed cloth to be gradually put into production in batches (30% has been invested in the first half of the year), it is expected to promote the rapid growth of the company's performance.
The decline in gross profit margin is affected by the rise in raw materials and capacity utilization in the off-season. The increase in interest income, income from asset disposal and the reduction in credit impairment losses make the net profit margin slightly lower than the gross margin. 21Q3's gross profit margin was 38.4%, with a year-on-year decline in 5.42PCT and a month-on-month decline in 4.13PCT. We analyze that on the one hand, it is due to the increase in the price of raw materials, on the other hand, it is 21Q3's net interest rate was 30.07%, down 0.68PCT from the same period last year and 1.22PCT from the previous year. From the point of view of the expense rate, the sales / management / R & D / financial expense rate is 0.49%, 1.62%, 3.89%, 2.32%, respectively, and the year-on-year increase is-0.25/-0.84/1.77/-2.78PCT. The decrease in financial expenses is mainly due to a substantial increase in interest income. Credit impairment loss / income was 0.73%, 0.7PCT decreased year-on-year, asset disposal income / income was 1.43%, year-on-year growth 1.5PCT.
Investment suggestion
According to our analysis, the unit price of the company is similar to that of other companies, but its profitability is better than that of its peers, mainly due to higher efficiency and yield. The company's barriers lie in: (1) original hot paste + wheel coating sizing process, resulting in more economical materials, better air tightness, and higher production efficiency; (2) equipment suppliers customize equipment according to the requirements of the company. (3) the self-production rate of the company's base cloth is higher, and the cost is more advantageous; (4) there are more types of subdivided products with higher gross profit margin in airtight materials.
The future growth space of the company lies in: (1) in the short term, the investment project will be put into production in batches, which is expected to drive airtight materials to maintain a compound annual growth rate of 30-50% in the next 3-5 years; (2) in the medium term, the increase in income share and efficiency of airtight materials will lead to an increase in gross profit margin; (3) in the long run, material prices have fallen sharply since 17 years, which is expected to expand the scope of application of airtight materials.
From 2021 to 2023, the income is 6.56 pound 8.23 / 1.025 billion yuan, the net profit of return to the mother is 1.92 shock 2.45 / 310 million yuan, the EPS is 1.92 pound 2.45 pound 3.1 yuan, the closing price on October 25, 2021 is 38.49 yuan corresponding to PE, respectively, the purchase rating is maintained and the target price is 49.09 yuan (corresponding to 22 years 20 times).
Risk hint
Airtight material price decline risk; industry competitor entry risk; lower-than-expected risk of production; lower-than-expected risk of downstream application expansion; systemic risk.

A total of five agencies have rated the stock in the last 90 days and five have bought ratings; the average institutional target price has been 49.88 in the past 90 days; according to the Securities Star valuation analysis tool, Watson Technology (605180) has a good company rating of 3 stars, a good price rating of 1 star and a comprehensive valuation rating of 2 stars.