I. Incident Overview
Recently, we conducted research on Jingwei Electric and exchanged information on the company's business development strategy and company performance with the company.
II. Analysis and Judgment
The merger and acquisition of Xinhuikai was approved, and the development of the two main businesses began
Recently, the major asset restructuring of the company's merger and acquisition of 100% of Xinhuikai's shares was conditionally approved, extending the business sector to the field of touch displays, and the development of the dual main business began. Xinhuikai's products include capacitive touch screens, liquid crystal display modules, touch display modules, and supporting ITO glass, cover glass, etc., which are widely used in vehicle displays, medical equipment, industrial control and other fields. Xinhuikai's performance promises for 2017, 2018, and 2019 were net profit of no less than 113,014,300 yuan, 13,65351 million yuan, and 153,4927 million yuan, respectively. We are optimistic about the development prospects of the company's dual main business layout of magnet wire reactors and touch display products.
Xinhuikai has a customer advantage, and its automotive touch screen and protective screen business is expected to grow rapidly. Xinhuikai's sales market is dominated by Europe and the US. Long-term cooperation with large multinational companies, including the world's top 500 companies, Honeywell, Flextronics, etc., has established a certain brand effect in the industry. Performance and gross margin have been improving over the past three years. Currently, after the successful application of touch screens in the mobile phone field, there is a sharp shift from the mobile phone field to the industrial control sector, especially the automotive sector. The average annual growth rate of automotive touch screens may reach 40% or more in the future. As a leading enterprise in automotive touch screens, Xinhuikai is expected to benefit. The company's protective screen products are new products jointly developed and produced with Corning. They are significantly higher than ordinary mobile phone protectors currently on the market in terms of appearance, size, and film quality. Since Corning is currently the designated supplier for high-end smartphone companies such as Apple and Samsung, and has a strong and loyal customer base, future protective screen products may become a new profit growth point for Xinhui, and there is plenty of market space.
The UHV delivery period boosts the main electromagnetic wire business. Reactor products are expected to gradually contribute to performance. The company's exchangeable aluminum wire products have a high market share in the UHV dry reactor field, and high-end copper-core solenoid wires are also widely used in the UHV field. In 2017, China will intensively put into operation 7 UHV lines, and the company's main magnet wire business is expected to benefit. Furthermore, the company began entering the field of electric reactors in 2015 and completed the certification of high-end products in a short period of time. The product has already won the bid for the National Grid UHV line twice, with a total bid amount of about 140 million yuan. The performance was partially confirmed in 2016. It is expected that in 2017, the winning products will continue to be delivered and contribute to performance. After having experience in connecting to networks, the company's reactor products are expected to continue to win bids for ultra-high voltage and ultra-high voltage projects. We continue to be optimistic about the development prospects of the company's reactor business.
III. Profit Forecast and Investment Suggestions
According to Xinhuikai's full-year consolidated estimates in 2017, it is estimated that the company's EPS for 17-19 will be 0.46, 0.58 and 0.66 yuan respectively, and the corresponding PE will be 28X, 22X and 20X respectively. They are optimistic about the profitability of the company's reactor products and the growth space in the touch display field, and maintain a “highly recommended” rating.
4. Risk warning:
Major asset restructuring remains uncertain; the expansion of the reactor market falls short of expectations.