Dahua Shares (002236) Commentary on Major Issues-Revising Unlocking Conditions for Equity Incentives Reveals Gradual Growth Decision

Dahua Shares (002236) Commentary on Major Issues-Revising Unlocking Conditions for Equity Incentives Reveals Gradual Growth Decision

On November 4, 2019, the company announced a plan to amend the “2018 Annual Stock Plan”. The main amendment is to add optional net profit indicators to unlock conditions.

We believe that the new conditions demonstrate the company’s determination to pursue growth, are optimistic about the company’s long-term development, and maintain a “buy” rating.

The company modified the unlocking conditions of the equity incentive plan to highlight its decision to grow.

In August 2018, the company launched the “2018 Stock Expansion Plan”, which granted 1 to 3,934 employees.

1.1 billion shares.

The unlocking conditions of the incentive plan originally included revenue and ROE assessments. The company plans to add new net profit and ROE to the unlocking conditions. The new and old conditions can be unlocked if one of them is satisfied.

Specifically, the original unlock condition is 1) 19?
Compared with the 17-year CAGR, the 21-year revenue is not less than 23%. 2) 19?
The 21-year return-to-mother ROE is not less than 17% / 18% / 19% respectively; this modification takes the original unlocking condition as indicator one, and adds indicator two: 1?
Compared with the growth rate of 17 years, the net profit attributable to mothers in 19 years is not less than 32% / 60% / 90% (according to the calculation of the company 19?
The 21-year profit assessment was 31.



200 million), 2) 19?
In 21 years, the ROE of the mother is not less than 19%. In the new scheme, the first and second indicators meet the unlocking conditions if any one of the indicators meets either one.

We believe that the company uses profit as an optional indicator of unlocking conditions, which demonstrates the company’s determination to pursue growth.

The key assessment targets include profit indicators, and one of the two options of income / profit is more conducive to the long-term healthy development of the company’s business.

The company’s revenue in 2018 was about 47% of Friends, and its net profit was about 22%. The expense ratio was 3pcts higher than Friends.

Under the pressure of the external environment, the company reduced its cost and control fees through internal management reforms, and its gross profit margin increased by +4 in the first three quarters of 2019.

6 pieces, helping return mother’s net profit +32.

5% maintained a good growth, this year the cost reduction and cost control benefits have been initially released.

We believe that the company’s expense ratio will reduce the remaining space in the future. At present, repairing internal strengths and purifying profits are more conducive to the company’s long-term growth.

Continue to be optimistic about the development of the industry and the company’s layout on the AI side for a long time.

With the help of AI, the marginal improvement in the demand of large enterprises, the commercial end will benefit from the visual IoT trend, and open up more room for growth for the company.

At the same time, the company is accelerating the second-phase construction project of Hangzhou Intelligent Manufacturing Base and the research and development and industrialization projects of smart IoT 上海夜网论坛 solutions, providing sufficient power for subsequent development.

We continue to be optimistic about the company’s follow-up development for a long time.

Risk factors: Government demand is less than expected; exchange rate risk; internal reforms of the company are less than expected; the development process of overseas markets is blocked; and the progress of supply chain conversion is less than expected.

Investment suggestion: The new leader reform brings improved profitability of the company and accelerated overseas market expansion, but short-term overseas uncertainties increase. We maintain the company’s EPS forecast for 2019-2021 to 1.



61 yuan, giving a 20x PE estimate for 2019, corresponding to a target price of 21.

2 yuan, maintain “Buy” rating.