Summary of the report
Company overview
The company is a communications cable manufacturer and supplier of integrated cabling products located in Jiangxi Province, China.
The company operates under the brand names of "Putian Hanfei" and "Hanphy". Its products include a wide variety of optical cables and communication copper cables, which are mostly used in the network construction and maintenance of telecom network operators.
According to the Ipsos report, the company ranks 10th among Chinese communications copper cable manufacturers in terms of sales revenue in 2016.
From 2014 to 2016, Putian Communications Group's income was 271 million yuan, 362 million yuan and 468 million yuan respectively, with CAGR of 31.4%; net profit was 17.8 million yuan, 34.4 million yuan and 52.1 million yuan respectively, and CAGR exceeded 71%. In 2016, the gross profit margin of the company's optical cable, communication copper cable and integrated cabling products was 26.4%, 18.8% and 38.1%, respectively.
Industry status and prospects
In 2008, the Chinese government put forward the strategy of further promoting the application of optical cable "optical advance and copper retreat". It is expected that the sales and market share of communication copper cable will decline; however, it will not be massively replaced by optical cable in the next five years.
With the development of optical cable market, the demand for optical fiber has increased significantly. Total optical fiber sales in China increased to about 281 million core kilometers in 2016, growing at a compound annual growth rate of nearly 15% between 2012 and 2016. Thanks to the Chinese government's goal of achieving full FTTH/O (fiber-to-the-home ╱ office) coverage and the promotion of telecom operators' placement of next-generation 5G communications, demand for optical fiber is expected to remain strong over the next five years, with a compound annualized growth rate of 15 per cent maintained over the next five years.
Advantages and opportunities
Long-term and stable relationship with major customers.
The supply of a wide variety of products brings great potential for development.
Forward-looking senior management, experienced executive team and outstanding executive ability.
Weakness and risk
Face the risk of significant fluctuations or reduction in revenue due to the concentration of customers.
Face the risk of an increase in trade receivables and notes receivable due to the concentration of customers.
The risk of significant fluctuations in the supply and prices of raw materials.
Valuation
Based on IPO pricing and 2016 net profit belonging to shareholders of listed companies, the company trades on a price-to-earnings ratio of 10.8-20.1 times 2016, compared with a price-to-book ratio of 1.96-2.57 times. The valuation is similar to that of Hong Kong optical fiber maker 6869.HK, but higher than that of communications copper cable maker 1300.HK. Taken into account, Putian Communications Group was given a special IPO rating of "5".