Main points of investment
The company released its third-quarter results, with revenue of about HK $16.038 billion and a loss attributable to shareholders of about HK $8.46 million, which was slightly lower than the previous forecast. Q3 had revenue of HK $5.3 billion in a single quarter and a profit attributable to shareholders of about HK $219 million, higher than market expectations. In the first three quarters, the gross profit margin was about 9%, and the net loss rate was about 0.1%.
From the perspective of shareholders' attributable profit in a single quarter, it has exceeded Q3 in 15 or 16 years, which is close to the highest level in two years. We believe that it is mainly due to the rapid endogenous growth of Shanwei parent company and the gradual improvement of the loss situation of Huizhou Associate:
The company's product structure has been successfully adjusted, and the proportion of non-mobile phone business with high gross margin continues to rise! From the perspective of the parent company, 16Q3 excluding the influence of the associated company, the endogenous profit is about 257 million, while 17Q3 reached 292 million, an endogenous increase of 14% over the same period last year; the single-quarter gross profit margin reached 10.1%, a significant increase compared with 8.4% in the first half of 17 years! We believe that it is mainly due to the successful adjustment of the company's product structure and the rising proportion of non-mobile phone business with high gross margin. At present, some of the company's car product panels still come from outsourcing, with the gradual replacement process of self-made TFT panels, the company's bargaining power with the upstream will be greatly enhanced, and the panel supply will be reliably guaranteed, which is expected to usher in the continued upward trend of gross profit margin and revenue. Vehicle business has increasingly become an important driving force for the future development of the company!
The first three quarters accounted for the loss of the associated company of about 346 million Hong Kong dollars, the single-quarter loss narrowed to 73 million yuan (Q2 about 95 million, the first half of 273 million Hong Kong dollars), the break-even point is approaching! We believe that the reduction in losses of associates is mainly due to the substantial increase in the rate of good products and the rate of production of associates. Considering that the capacity climbing of the associated companies is nearing completion, with the mass production of TFT panels and the gradual introduction of AMOLED customers, the loss in a single quarter is expected to continue to decrease quarter by quarter, the working capital situation is expected to significantly improve, and it is expected to break even in the second and third quarters of next year!
The company takes the panel as the core, and the product line expands to a number of businesses: touch screen, camera, fingerprint recognition module and so on. In the field of AMOLED, Huizhou and Renshou projects help the company to enter the forefront of the industry, casting a new growth engine; in addition, the vehicle screen will become an important performance support in the future, and the global ranking is expected to enter the top three from the sixth, looking forward to high growth in 18-19 years. In the era of dual photography + 3D Sensing, the company has deeply benefited from the technology dividend of the full screen + dual photo era, in which 3D sensing works closely with Qualcomm Inc and Himax, and is expected to become the first batch of mass production module manufacturers in the Android camp in the first half of 18 years!
Under the joint influence of Letv's bad debts and the production capacity climbing of the associated company in the first half of the year, the loss attributable to shareholders was about 270 million yuan. at present, the company has straightened out the relationship of interests with Letv, and the profits have been exhausted, and the business of the parent company continues to improve and its profitability is strong. the turnaround point of the associated company is approaching, the company's overall performance inflection point has been formed, next year's business is worth looking forward to!
Investment suggestion: considering the 53% shareholding of Huizhou Factory Company, we expect the company's 2017-2019 pro forma return net profit to be HK $3.411.6 / 1.49 billion, corresponding to HK $0.11,38,0.49 (share capital 3.07 billion), PE 34x\ 10x\ 7.8x and PB only 1.491.3\ 1.1in 17-19 years. Target price of HK $5.85, maintain the "buy" rating!
Risk hint: the production rate is lower than expected.