Investment highlights:
Profit forecasts were raised,] the target price was raised to 59.6 yuan, increasing holdings. The company is a scarce variety of military stocks. Combining “high-end scarce products+the eve of the performance explosion+the reform expectations of the Chinese Academy of Sciences”, we raised the 2014-16 EPS to 0.82/1.10/1.47 yuan (originally 0.79/1.02/1.33 yuan). Combining the industry valuation level and considering the company's industry position and product scarcity, it was given 73 times PE in 2014. The target price was raised from 50 yuan to 59.6 yuan to maintain the “increase” rating.
A different view from the market: The market recognizes the company's technical strength, but believes that its performance is not explosive.
However, we believe that the company's growth potential and investment value have not yet been fully tapped by the market: ① The company is the only supplier of a scarce variety of high-end defense optoelectronic equipment: domestic high-end CMOS chips, absolute scales, and airport pavement foreign matter monitoring systems, breaking foreign monopolies and filling domestic gaps.
② The company is on the eve of a performance explosion: new products and businesses have entered a harvest period, and the release of high-end CMOS chips, the industrialization process of absolute grating scales, and the delivery progress of airport pavement foreign matter monitoring systems will all exceed market expectations. ③ Backed by the Institute of Optoelectronics, it is expected to benefit from the wave of reform in the Chinese Academy of Sciences.
Military demand is urgent, the civilian market is vast, and the release of high-end CMOS chips is imminent. Two years after its establishment, Changguang Chenxin developed 150 million high-end CMOS chips with the highest pixels and large target surface in the world, achieved small-batch production, and achieved profit for the first time in the first half of 2014. Overseas teams contributed greatly.
According to our estimates, China's aerospace and defense services demand about 1 billion yuan for high-end CMOS chips every year, which is used in a wider range of civilian markets such as biological imaging and security monitoring. We expect that there will still be new products in the GMAX and GSENSE series in 2014, with significant sales starting in 2015. If estimated at 50% equity and 60% gross margin, under ideal conditions, it could contribute 150 to 200 million yuan of profit per year.
Catalysts: CMOS chips launched new products and received new orders; airport pavement debris monitoring system delivered.
Risk warning: the reform progress of the Chinese Academy of Sciences is lower than expected; military orders fluctuate greatly; new product development risks.