The company is an investment company controlled by the Wuhan Municipal Government. In recent years, the revenue of the optical communications adjustment company has continued to decline in 2006 and 2007, by-11.7% and 22.2% respectively. Revenue grew 4.3 per cent in the first three quarters of 2008. The main reason for the decrease in revenue is the contraction of wireless communications business. The proportion of wireless communications revenue in total revenue has dropped from 41% in 2005 to 5% in the first half of 2008.
At present, focusing on the upstream and downstream industries of optical fiber, the company has formed three holding companies operating optical fiber dispersion compensation module optical cable and FTTH respectively.
Changfei, a participating company, is the main source of profit, but Changfei's net profit will be negative this year. Changfei Optical Fiber, which is 25% owned by Changfei Optical Fiber, is the leading enterprise in the domestic optical fiber industry, and its production and sales of optical fiber have been the first in China for a decade in a row.
In 2006, 2007 and the first half of 2008, Changfei's investment income accounted for 124%, 133% and 60% of the company's net profit, respectively.
In 2007, Changfei Optical Fiber achieved an investment income of about 40 million by reducing its stake in Huiyuan Telecom by 5.34 million shares. Changfei still holds 5.39 million negotiable shares in Huiyuan Communications. Huiyuan Telecom currently has a share price of 3.80 yuan. Even if it is reduced this year, its net profit will not exceed 20 million yuan. In 2007, Changfei's profit margin was 167.26 million yuan. In the first half of 2008, Changfei's net profit was 48.34 million yuan (the first half of 2007 net profit was 61.56 million yuan). It is expected that Changfei's net profit this year will be slightly lower than the same period last year.
The company's performance growth is slow, the current high stock price valuation of the company's main business in optical communications, future performance growth depends on the development of optical communications industry, especially the development of FTTH. It is expected that the development of FTTH will be a gradual process. Recently, the company's stock price has rebounded sharply due to the expected issuance of 3G licenses, and the investment risk has increased.
Without considering the sale of Donghu Hi-Tech shares, the company's EPS is expected to be 0.17,0.20 in 2008 and 2009, respectively. The current share price is 6.4RMB, corresponding to 2008 and 2009 PE of 37,32 times. If the East Lake high-tech tradable shares are sold in 2008, the earnings per share will be increased by 0.065 yuan in 2008.
The valuation level of the company is higher than that of enterprises in the same industry, but the growth is not outstanding. Give a "neutral" rating.
