Investment highlight
Cover Lion Technology Company (300603) for the first time to give a recommended rating, with a target price of 47.00 yuan, corresponding to 25 times the 2019 forecast. The reasons are as follows:
Lion technology is the core security system service and communication network service provider in Xinjiang, which can fully enjoy the industry dividend of Xinjiang security. At the same time, due to the company's solid market resources and service capacity, the market share has increased rapidly. The company's market share is expected to increase from 4.53% in 2015 to 8.15% in 2017. (1) the company has successively won the bid for large-scale security projects in Kashgar City and Qiemo County this year, and has great market influence in southern Xinjiang such as Kashgar, Hotan and Aksu, as well as Tacheng, Urumqi, Changji and other northern Xinjiang. (2) it is expected that the communication business of the company's operators will remain stable, and the transportation and communication services such as roads and railways will usher in a period of rapid development. (3) the operating income in the first half of 2017 has exceeded that of last year, and the operating income in 2019 is expected to exceed 2 billion yuan.
Through the comprehensive layout of market expansion, service content extension and industrial chain cooperation and integration, Lion technology provides strength for medium-and long-term development. (1) product dimension, the company is actively laying out artificial intelligence, Internet of things, operation and maintenance services, and trying to establish win-win cooperation with industry leading companies such as Shangtang Technology; (2) market dimension, the company's layout in markets such as Northwest and Central Asia is expected to rise abruptly based on accumulated strength.
What is the biggest difference between us and the market? The market is particularly concerned about the sustainability of the future performance of technology. We propose that: (1) the rapid growth of security investment in Xinjiang can last for 2-3 years. (2) the company has a clear medium-and long-term strategic layout, which will be extended through market expansion in Northwest China and Central Asia, smart city, Internet of things, integrated operation and maintenance services in the future, and the use of industrial chain cooperation and integration to introduce new technologies and products to obtain sustainable driving force for performance growth.
Potential catalysts: continuous acquisition of large-scale security projects; continuous improvement in cash flow of business activities; breakthroughs in overseas market expansion and industrial chain layout.
Profit forecast and valuation
We estimate that the company's EPS and CAGR for 2017-2019 will be 0.97, 1.43, 1.87 and 75.45 respectively. Taking into account the high short-term performance growth of Lion Technology, as well as the persistence of good strategic layout for medium-and long-term performance, we give the company a forecast of 25 times the 2019 Phammer E, corresponding to the target price of 47 yuan.
Risk
(1) the growth rate of security investment in Xinjiang has dropped sharply; (2) poor market maintenance has led to a significant decline in the value of the contract; (3) the cost has risen rapidly; (4) the cash flow of business activities continues to deteriorate; (5) the market expansion and service content extension are not as expected; (6) shareholders lift the ban and reduce their holdings.
