Events:
The company issues semi-annual report. 2017H achieved operating income of 250 million yuan, an increase of 252%, net profit of 52.21 million yuan, a decrease of 39%, and earnings per share of 0.08 yuan.
Deducting non-endogenous growth is steady. Excluding the reasons for consolidation, the company's endogenous revenue maintained double-digit growth (about 15 per cent); the decline in profit was mainly due to non-recurrent profit and loss of 74.88 million yuan (disposal of Laoshida assets) in the same period last year, and net profit after deducting non-profit was 48.91 million yuan, an increase of 344% over the same period last year.
The security service layout of the Internet of things is smooth
Zhongke Rongtong is mainly engaged in the perimeter security business of the Internet of things, and its main products are prison Internet of things intelligent security platform, border intrusion prevention and control platform, land-based viewing and aiming system, and so on. With the promotion of low-altitude defense, light-mine fusion perimeter intrusion prevention and other projects in 2017, new products such as perimeter security radar and perimeter intrusion detection and early warning were put into use. Zhongke Rongtong achieved business revenue of 3695, an increase of 16% over the same period last year. In the future, the company will combine cloud computing, Internet of things, artificial intelligence and other emerging technologies to achieve early warning, disposal, forensics and other functions to fully meet the needs of customers.
The key layout of frontier defense and justice in the market. Focus on Yunnan, Xinjiang, Liaoning and other border defense markets, as well as Beijing, Tianjin, Jiangxi, Chongqing and other prison markets. Strengthen the overall planning and construction of border control, actively participate in government PPP projects, and work with partners to promote the pilot construction of intrusion prevention and smart city construction in energy, public security and other industries. We believe that with the deepening of the country's "intelligent frontier" strategy, the prosperity of the security industry in Xinjiang will show explosive growth from 2017 to 2019, and the annual net profit of China Science and Technology Rongtong is expected to reach about 51 million in 2017.
New products of mobile intelligent terminals iterate, starting the battle of mid-and high-end upgrading.
Shenzhen Xingfei produced many new products in 2017, and new products such as F620 are integrated with 4G metal double photography technology to achieve the goal of mid-and high-end upgrading. Customer development in addition to ZTE Corporation, SF, Philips and other old customers, new cloud brush technology, three links Yida and other new customers. Under this impetus, the revenue of 2017H Shenzhen Xingfei was 2.4 billion yuan, an increase of 14.9% over the same period last year; the net profit from mobile phone sales was about 53.39 million yuan, an increase of 41% over the same period last year, and the gross profit margin increased significantly. In the future, with the promotion of newly developed VR mobile phones, projection mobile phones, logistics mobile phones and other smart terminals, as well as the establishment of Nanjing Professional Research Institute, Xingfei will continue to grow steadily. Xingfei (including Tuoyu) is expected to achieve a net profit of 183 million yuan for the whole year.
Profit forecast and valuation
We forecast that Shida Group will have revenue of 6270 billion yuan, net profit of 27,000 million yuan and CAGR of 38% in 2017 and 2018 respectively.
The current purchase rating corresponds to 18 times of the 18-year PE 25ax in 2017, with a target price of 14.50 yuan.
Risk tips: 1) the bargaining power of downstream customers of ODM manufacturers is higher, and it is difficult to raise the level of gross profit margin. 2) in recent years, there are many mergers and acquisitions of assets and a large scale of goodwill.