Fiber optic cable demand continues to benefit from broadband China, with volume and price flying to drive business growth. Yongding Co., Ltd. is a leading optical fiber and cable manufacturer in China, which has been rated as the "Top Ten most competitive Optical Fiber and Cable Enterprises in China" for nine consecutive years. The company ranks second in China Mobile Limited's special optical cable collection this year (22%). At the same time, it has won the bid for radio and television cable collection in Guizhou, Heilongjiang and other places. With the commissioning of the second phase of the optical fiber drawing project and the improvement of the technology level, the company's optical cable gross profit margin will be significantly improved. We believe that under the influence of multiple factors, such as the strategy of "Broadband China", the continuous construction of 4G by operators and the shortage of domestic optical fiber prefabricated rods, the logic of China's optical fiber cable volume and price rise in 2017 remains the same, and the company's optical cable business will continue to benefit.
Signing overseas EPC orders one after another, Belt and Road Initiative brought new opportunities. In 2016, the company signed a number of overseas EPC project contracts, totaling more than 10 billion yuan, which had a significant positive impact on the company's revenue from 2017 to 2020. At present, Southeast Asia, Africa and other regions have a rigid demand for infrastructure construction, especially power engineering construction, and the company's ability to undertake projects is widely recognized, and the further implementation of the national "Belt and Road Initiative" strategy will bring new opportunities for the company's overseas EPC business.
New energy vehicles will inject vitality, and the wire harness business can be expected. The company is the only domestic company qualified as a Volvo, GM and Volkswagen wire harness supplier with stable customer resources. This year, the rise of new energy vehicles has injected new vitality into the automobile market, and the growth of automobile production has driven the demand for wire harness products of the company. At the same time, the company has also begun the research and development of high voltage wire harness for new energy vehicles, opening up new markets for future wire harness business. Growth is expected.
Layout big data, strive for a breakthrough in the industrialization of the superconducting market. According to the current progress, it is expected that the acquisition of Yongding Zhiyuan will be completed by the end of this year, and the fourth quarter results are expected to participate and report, thus thickening the company's profits. The company or with the help of Yongding Zhiyuan quickly cut into the big data field market, and in the sales resources integration, give full play to synergy. In terms of superconducting materials, the current-carrying capacity and length of the superconducting tapes independently developed and produced by the company are in the leading level in the world, and it is expected to quickly enter the superconducting market in the future.
Profit forecast and investment advice. It is estimated that the EPS from 2016 to 2018 is 0.25,0.38,0.44 yuan respectively, and the corresponding PE is 40 times, 27 times and 23 times respectively. Taking into account the growth of the company, as well as communications (Shenwan) industry-wide valuation of 57.5 times, the first coverage, given a "buy" rating, the target price of 12.50 yuan.
Risk hints: fierce competition in the optical communications industry; uncertainty in overseas engineering contractors; uncertainty in the performance commitment of Jinting wire harness; uncertainty in the superconducting material market.