Main points of investment
Rising copper prices boosted turnover and reduced provisions for bad debts contributed to a big increase in net profit. Interim results: revenue rose 9.7 per cent year-on-year to 1.467 billion yuan, net profit increased 60 per cent to 122 million yuan, gross margin fell 1.58 percentage points to 19.77 per cent, and proposed interim dividend of HK1.7 cents per share. The company's operating results increased steadily in the first half of 2017, and the increase in revenue was mainly due to the increase in the unit price of products caused by the rise in copper prices compared with the same period last year, and the substantial increase in net profit was mainly due to a significant reduction in the provision for bad debts compared with the same period last year and foreign exchange gains.
Coaxial cable sales increased, strategic price reduction to strive for market share. In the first half of the year, coaxial cable sales rose 1.8 per cent to 80100 km, while turnover rose 7.6 per cent year-on-year due to rising copper prices. When bidding, the company intends to reduce the price of coaxial cable products in order to increase market competitiveness and gain more market share, so the gross margin of coaxial cable decreased by 0.9 percentage points to 21.3%.
The volume and price of optical cable products have risen, and the gross profit margin has dropped slightly. Thanks to the growth in demand for optical cables driven by "broadband China" and "fiber-to-the-home" policies, the company's optical cable sales increased by 10.5% to 4.821 million core kilometers compared with the same period last year, turnover rose 18.3% to about 460 million yuan, and gross profit margin decreased 0.7% to 19.2%.
Reduced provision for bad debts + exchange gains significantly increased the level of net profit. In the first half of 2017, the company set aside 37.31 million yuan for bad debts, a sharp decrease of 55.8 million compared with the same period last year. The exchange realized a positive gain of 4.4 million, compared with a loss of 7 million last year. Only the reduction of provisions and exchange gains increased the net profit by nearly 67.2 million yuan compared with the same period last year, so the net profit increased greatly compared with the same period last year.
Our view: the continued increase in 4G network construction and the rebound in copper prices have contributed to the growth of revenue from feeder and flame retardant flexible cables, while benefiting from the construction of "Broadband China", the volume and price of the company's optical cable products have risen. We forecast that the company's current stock price is about 6-7 times PE for 2017 results, and investors are advised to pay close attention to it.
Risk tips: raw material prices fluctuate; industry competition is fierce, gross profit margin continues to decline.
