Report summary:
Zentong Electronics is the world's largest industrial base in the field of financial payment information security products, providing customers with comprehensive and timely product services. Currently, the company's main business includes four major sectors: financial electronics, IDC big data and cloud computing, internet finance, and energy saving and environmental protection. In the future, the company will also gradually build an industrial ecosystem centered on secure payments where various businesses support each other and develop collaboratively.
Revenue for the first three quarters of 2016 was 953 million yuan, an increase of 89.02% over the previous year; Guimu's net profit was 31,888 million yuan, an increase of 3.45% over the previous year. The main reason for the high revenue growth rate was the increase in revenue from autonomous terminals and LED products, as well as the addition of revenue from IDC business and electronics trade business. The increase in expenses such as R&D investment and interest temporarily affected the growth rate of net profit, which is basically the same as last year. However, considering that most orders for financial electronics and other products confirm revenue at the end of the year, the release of year-end results is worth looking forward to.
Financial payment information security products are the company's traditional advantage products, with high alternative barriers and customer stickiness. The company has strong cooperative customers at home and abroad, such as Agricultural Bank, China Telecom, OKI, Fujitsu, etc. In order to further meet customer needs, the company developed O2O solution services, which helped financial institutions and other customers expand their external service channels, realized the integration of multiple online and offline channels, provided users with very convenient integrated services, and opened up new value-added profit space for the company.
The company actively lays out the IDC business. It now has data centers in Guangzhou and Dongguan, and is building data centers in Shenzhen and Changsha, and plans to build no less than 30,000 racks in the future. As all of these racks are put into operation, the IDC business will be able to bring the company a net profit of about 300 million dollars a year, which is an important component of the company's net profit.
Investment strategy: Optimistic about the company's high technical barriers and leading industry position in traditional financial electronic products, as well as potential performance growth space for new businesses such as electronics trade, O2O solutions, and IDC. The company's revenue for 16-18 is estimated to be 1,395 million, 17.71 and 2,050 million yuan respectively; net profit is 109, 1.38 and 174 million yuan respectively; EPS is 0.21, 0.27 and 0.33 yuan respectively; and PE is 86.82, 68.69 and 54.52 times, respectively. Considering the high growth of the new business, it was given 80 times PE in 17 years, with a target price of 21.6 yuan for 6 months, covering the first “recommended” rating.
Risk warning: Product sales fall short of expectations; new business development falls short of expectations.
