Main points of investment:
The historical accumulation of red and yellow light chip bibcock set sail again. In the field of red and yellow LED epitaxial wafers and chips, the company is one of the largest enterprises in China. Its packaged products can be used in display screens, infrared security, electronic equipment indicators, traffic lights, night scene engineering, vehicle lighting and many other fields. Red and yellow light LED is also the main business that the company has been adhering to since its inception. It is one of the enterprises with the largest output of high brightness quaternary red and yellow light LED chips in China, and has a deep technical reserve.
Strategic cooperative shareholders are introduced to realize the smooth change of the equity of some shareholders. In 2016, the company formally introduced new strategic shareholders and Junzhengde. Hejun has a wealth of theoretical accumulation and practical experience in management improvement, efficiency improvement and capital operation, which is conducive to the clarity of the company's future strategy, forward-looking development and achieve a new round of great-leap-forward development.
LED chips benefit from downstream display bursts. The downstream market of LED is huge, and quad LED chips are mainly driven by display. Red and yellow light chip is a niche market, because the blue light chip with phosphor has been used in the field of lighting and backlight. Red and yellow light is more used in the field of display. At the same time, driven by small gaps and other emerging markets, the downstream demand for red and yellow chips will be further enhanced.
Commercial expansion and cost reduction will actively promote small spacing, and the demand for red and yellow LED chips is expected to increase greatly. With the high demand for the display industry downstream, the elasticity of the growth of the whole red and yellow chip from a small base will be very obvious. In the process of rising growth in the industry. It is expected that the future competition for red and yellow light chips will mainly focus on the production expansion plans of several larger manufacturers, and the companies with the original advantages and long-term strategic vision will significantly benefit from this wave of industry development.
Chip production speed up, employee stock ownership brings confidence. The company has launched two periods of employee stock ownership plan, reflecting the company's confidence and determination to work together for development. On March 21, 2016, the first phase of the employee Stock ownership Plan purchase was completed. The cumulative purchase of shares in the company accounts for 1.52% of the total share capital of the company, the total transaction amount is about 63.638 million yuan, and the average transaction price is about 5.94 yuan per share. In this employee stock ownership plan, six people, including directors, supervisors and senior executives, account for 26% of the total share, while other ordinary employees account for 62% of the total share, and another 12% is reserved.
CAGR=46.73%, will be the leader in the small and beautiful segment of the field in the next two years. We expect the company to make a net profit of 183 million yuan / 278 million yuan / 394 million yuan in 2017 and 2018. The CAGR will reach 46.73% in the next 2 years, and the corresponding EPS will be 0.26 yuan / 0.39 yuan / 0.56 yuan. The company's industry, using San'an Optoelectronics, Huacan Optoelectronics, Dehao Runda and Aoyang Shunchang as valuation comparison, selected 2018 PE level of about 19 times, taking into account the company's high growth performance, given a 25 times PE valuation, the corresponding company target market capitalization of about 7 billion. With reference to PEG valuation, assuming that the company has a reasonable PEG=1, the company's market capitalization is about 8.6 billion. Combining the two valuation methods, the company is conservatively valued at about 7 billion, giving a buy rating.
Risk tips: falling LED chip prices, flagging downstream demand market.
