Main points of investment
The company is the largest RF cable manufacturer in China, with a leading market share and gross profit margin. The company is the largest RF cable manufacturer in China, with a market share of more than 25%. At present, it has 37 patents related to RF cables and new electronic components, and continues to maintain a higher market share and product gross profit margin than its peers through its own R & D and production advantages.
RF cable business benefits from the construction of 4G network scale. Every 4G base station uses about 0.6km of RF coaxial cable, which is 20% more than that of 3G/2G base stations. The construction scale of 4G base stations is much larger than that of 3G era. It is expected that the large-scale construction of 4G network will promote the demand of RF cables in 2013, 2014 and 2016 to maintain a compound growth rate of over 15%.
The company's RF cable business will benefit from the increase in concentration brought about by the large-scale construction of 4G base stations and the increase in operation in the next 3 years. It is expected that the RF cable business revenue in 2013 / 2014 / 2015 is 2.145 billion / 2.697 billion / 3.349 billion RMB respectively.
The company's flame retardant flexible cable business is growing at a high speed. The company's flame retardant flexible cable products have begun mass production, it is believed that with the help of similar sales channels of RF cable, the business of flexible cable will grow at a high speed. We expect the company's flexible cable sales revenue to grow by 50%, 30%, 35% and 30% in 2013-14-15. In the future, the company is considering to enter the optical fiber and cable market which is consistent with the RF cable sales channel, and it is believed that optical fiber / optical cable will become a new growth point in the future.
Risk factors: the construction scale of 4G base stations is smaller than expected, such as operators adopt new base station technology solutions to reduce the use of RF cables.
Investment advice. We predict that the company's annual income in 2013-14-15 will be 26.9 million yuan, respectively, and the corresponding growth rate will be 20.8%, 25.2%, 23.2%, 23.2%, and 529 million yuan, respectively. The expected EPS for 2013-14-15 will be 0.31, 0.38, 0.47 yuan, corresponding to a growth rate of 19.3%, 21.4%, 24.4%. We give Junzhi a "buy" rating with a target price of HK $4.17, corresponding to 8 times 2014 earnings.