Item: the core focus of Guanghong technology
1. The company is the leading EMS enterprise in China, ranking 44th in the world in 2019 and 2020. the main products providing electronic manufacturing services include consumer electronics, network communications, Internet of things, automotive electronics, smart wearable and other electronic products.
2. The performance in 2020 will be affected by the epidemic and major customers. With the introduction of XIAOMI's mobile phone and the resumption of glory mobile phone sales in 2021, the mobile phone business will return to growth.
3. XIAOMI and other domestic brand mobile phone manufacturers have been accelerating the development of overseas markets in recent years. In order to cooperate with their customers' overseas business, the company is speeding up the global strategic layout, in addition to the Indian factories acquired in 2019, new manufacturing bases will be built in Vietnam and Bangladesh respectively.
4. With the recovery of mobile phone business, we estimate that the operating income of the company from 2021 to 2023 will be 2.9493,560,4.316 billion yuan respectively, and the net profit of returning to the mother will be 434 million RMB 555,000,000 yuan, respectively, and the corresponding PE will be 22.1 yuan 17.2 and 14.3x respectively. Maintain a "buy" rating.
Comments:
Entered the global top 50 EMS industry for two years in a row.
Huizhou Guanghong Technology Co., Ltd. was founded in 1995. With its unique manufacturing concept, extreme pursuit of process details and years of experience with Japanese partners, Huizhou Guanghong Technology Co., Ltd. has rapidly developed into a leading electronic manufacturing service provider. In 2003, the company successfully introduced 0201 patch production and lead-free process, in the industry leading position. The company was successfully listed on the gem in 2017. According to the list of the world's top 50 EMS contract manufacturers released by MMI, an electronic manufacturing service research institute, the company ranked 44th in the world in 2019 and 2020. As of March 31, 2021, the company's largest shareholder is Guanghong Investment, holding 51.08%, and the actual control of Guanghong Investment is Tang Jianxing.
The company's main business is specialized in electronic products PCBA and finished product assembly, and provide process technology research and development, process planning, procurement management, production control, warehousing logistics and other complete services of electronic manufacturing services (Electronic Manufacturing Services,EMS). EMS model is a popular business model in the global electronic manufacturing industry, and its emergence and development benefit from the promotion of electronic products manufacturing outsourcing business under the background of global specialization. Electronic manufacturing service enterprises undertake the manufacturing links in the value chain of electronic products, and provide manufacturing services for brands of electronic products by virtue of their rich industry experience and professional manufacturing capability. in order to meet the needs of brands to focus on brand management, reduce production costs, rapidly expand product capacity and shorten product launch time. Under the EMS mode, the company provides customized electronic product manufacturing services based on customer demand, including raw material procurement, new product introduction (NPI), PCBA, finished product assembly, warehousing logistics and other complete electronic product manufacturing links.
The main products that the company provides electronic manufacturing services include consumer electronics (smartphones, tablets), network communications (network routers, base station positioning terminals), Internet of things, automotive electronics (OBD, driving recorder), smart wearable (smartwatch) and other electronic products. The company has well-known partners from all over the world, successfully entered the supply chain of global famous brands such as Huawei, XIAOMI, Glory and leading ODM companies such as Huaqin Technology and Wentai Communications.
Consumer electronics has always been the main source of revenue for companies, and its share has increased significantly in the past few years, from 59% in 2016 to 82% in 2020. As the construction of 4G base stations came to an end, the network communications business grew slowly or even negatively, falling to 8% in 2020; the Internet of things, automotive electronics and smart wear accounted for 6%, 2% and 2% of the annual income in 2020, respectively.
XIAOMI's glory brings upward momentum and accelerates the layout of globalization.
Glory resumes sales, Huawei's influence bottoms out. The company has established a cooperative relationship with Huawei since 2007, following Huawei's global expansion trend to expand the scale of business cooperation year by year. Huawei is an important customer. On September 15, 2020, the US ban on Huawei came into effect, and Huawei's mobile phone shipments began to decline rapidly. According to Counterpoint, Huawei shipped 54.8 million units worldwide and only 33 million 2020Q4 units worldwide. In November 2020, Huawei officially decided to sell its glory business, which began to operate as an independent mobile phone brand. After the divestiture of Glory, Huawei's global mobile phone sales shrank further, with only 14.7 million or 9.8 million 2021Q1 and Q2 Huawei mobile phones shipped worldwide, according to Omdia. But Glory handset shipments began to recover after restructuring the supply chain, with shipments rising 39% and 27% month-on-month in May and June 2021, respectively, according to Counterpoint. We believe that Huawei's impact on the company has bottomed out with the resumption of the supply of Glory phones.
The cooperation with XIAOMI mobile phone is carried out smoothly. XIAOMI's mobile phone sales are growing rapidly. According to Counterpoint, 2020Q2 XIAOMI shipped only 26.5 million units worldwide, while 2021Q2 grew to 53 million units, the second largest market share in the world. The company began to cooperate with XIAOMI in October 2020 to set up a special department of XIAOMI project to follow up XIAOMI's mobile phone business. With the joint efforts of XIAOMI's resident team and the company's team, XIAOMI's project was delivered in quality and quantity, and XIAOMI produced 1 million mobile phones in March. We believe that the introduction of XIAOMI's mobile phone provides the company with new growth momentum.
Cooperate with customers to carry out overseas business and accelerate the global layout. XIAOMI and other domestic brand mobile phone manufacturers have been accelerating the development of overseas markets in recent years. In order to fully cooperate with customers in exploring overseas markets and provide customers with better quality and more intimate services, the company is speeding up the strategic layout of globalization. In 2019, the company acquired an Indian factory in Haryana, covering an area of 22500 square meters, expanding its Asian territory and taking the first step towards international diversification. With the successful operation of the Indian plant, the company began to replicate its successful model and planned to build new manufacturing bases in Vietnam and Bangladesh respectively to provide localized manufacturing services for customers' overseas order needs. We believe that with the expansion of Guanghong overseas base, the company can carry out deeper cooperation with customers around the world.
The performance in 2020 is affected by the epidemic and major customers, it is expected to improve in 2021, the performance in 2020 is affected by the epidemic and major customers, and is expected to improve in 2021. Thanks to the continued growth of the consumer electronics business, the company's revenue continues to hit record highs.
Affected by the epidemic and major customers respectively, 2020Q1 and Q4 saw a year-on-year decline in revenue. In 2020, the company achieved a revenue of 2.285 billion yuan, an increase of 4.34% over the same period last year, and a net profit of 319 million yuan, down 25.73% from the same period last year. Performance is expected to improve in 2021 as the epidemic improves and customer orders resume. In the first quarter of 2021, the company achieved an income of 517 million yuan, an increase of 27.18% over the same period last year, and a net profit of 22 million yuan, an increase of 6.80% over the same period last year.
With the exception of 2020, net interest rates continue to rise. Except for 2020, the company's gross profit margin and net profit margin showed an upward trend as a whole, with gross profit margin and net profit margin of 31.83% and 19.03% respectively in 2019, an increase of 2.4 percentage points and 6.4 percentage points respectively over 2016. In the past two years, the company's net profit cash content is very high, more than 100%, and more than 85% of the net profit comes from recurrent income.
Mobile phone business meets the inflection point and maintains a "buy" rating
1. The company is the leading EMS enterprise in China, ranking 44th in the world in 2019 and 2020. 82% of the income in 2020 comes from consumer electronics.
2. The company's performance in 2020 will be affected by the epidemic and major customers. With the introduction of XIAOMI's mobile phone and the resumption of glory mobile phone sales in 2021, the mobile phone business will return to growth.
3. XIAOMI and other domestic brand mobile phone manufacturers have been accelerating the development of overseas markets in recent years. In order to cooperate with their customers' overseas business, the company is speeding up the global strategic layout, in addition to the Indian factories acquired in 2019, new manufacturing bases will be built in Vietnam and Bangladesh respectively.
4. With the recovery of mobile phone business, we estimate that the operating income of the company from 2021 to 2023 will be 2.9493,560,4.316 billion yuan respectively, and the net profit of returning to the mother will be 434 million RMB 555,000,000 yuan, respectively, and the corresponding PE will be 22.1 yuan 17.2 and 14.3x respectively. Maintain a "buy" rating.
Risk hint
1. Systemic risks caused by macroeconomic fluctuations, major natural disasters, infectious diseases, etc., resulting in lower-than-expected downstream demand; 2. Glory mobile phone sales recovery is not as expected.
3. XIAOMI's mobile phone introduction is not as good as expected.
4. the progress of production expansion is not as expected.
5. The enterprise's own management of operational risks may lead to lower-than-expected performance.
