Taking into account the rapid growth of the company's earnings in the coming years due to water investments and the consolidation of the 2012 acquisition, we forecast earnings per share growth of 53% and 23% in 2012 and 2013, respectively. Referring to about 30 times the 2012 forecast p/E ratio, we maintain the company's target price of 16.80 yuan to maintain a buy rating on the stock.
Sinowater's stake has given the company a brand and image boost. With the company's development in the 2CY gear pump market, we expect the company's industrial pump revenue in 2012 to be close to 650 million yuan compared to 2011, an increase of more than 30%. The main risk to ratings is a slowdown in demand in overseas markets.
The company has fully launched the market promotion and technology introduction of industrial pump products, Leo's goal is to achieve sales revenue of more than 3 billion yuan in 2013, sales revenue of more than 5 billion yuan in 2015.
In the next five to 10 years, China will vigorously strengthen the construction of water conservancy infrastructure. The substantial increase in investment in water infrastructure construction is expected to drive a substantial increase in sales of water pump products, especially the large water pump products that Leo focuses on.
As Leo has started the operation and marketing of industrial oil pumps, administrative expenses and sales expenses increased rapidly, and the company's operating profit margin decreased by 3.0 percentage points and net profit margin decreased by 0.3 percentage points year-on-year. Referring to 30 times the 2012 forecast p/E ratio, we maintain the company's target price of 16.80 yuan to maintain a buy rating on the stock.
Net profit for 2011 increased 5% year on year to 116 million yuan. Net profit increased 8% year on year to 1.2 billion yuan, mainly due to the recovery of small industrial pumps in export markets. The company's gross margin decreased by 1 percentage point due to a significant increase in material, particularly steel grade, and labor costs during the period, as well as higher depreciation due to the company's expansion of industrial pumps.
