Report guide
The company announced that it has signed a “Memorandum of Cooperation on Project Investment” with Wuhan Dingshi, an indirect holding subsidiary of Huaxia Happiness, to cooperate in the procurement of smart home products and investment in R&D and production projects for new display devices and backlight modules.
Key points of investment
Opened the door to cooperation with real estate leaders and achieved zero breakthroughs
According to the announcement, Wuhan Dingshi plans to purchase 1,000 sets of smart home products from the company in 2018, and is expected to sign another 5,000 sets. We believe that the company's collaboration with Huaxia Happiness, which is among the top ten residential sales companies in the country, has taken the first step in smart home IoT. Peacock City, the community we are cooperating with this announcement, is also a high-end community focusing on building a new type of smart community. We believe that the performance of the company's products meets the needs of smart communities.
Although the number of equipment purchased intended to be ordered in the announcement is not large, the incident means that the company has successfully begun cooperation with real estate agents and has begun to see initial results in accordance with established policies. We believe that the amount of cooperation with Huaxia Happiness will further increase as the cooperation deepens. At the same time, the company will also reach cooperation with other real estate developers, showing more blossoming and rapid growth in the future.
The landing of new production capacity in Wuhan is beneficial to the company's expansion and is cost-effective
The company began expanding its smart display business last year. Not only did it independently develop and design ultra-thin and curved surfaces, but it also developed the business from OEM to ODM. In the future, smart displays will not only operate as a traditional business, but also support the smart home IoT business.
However, since the cost of production capacity in the eastern region is significantly higher than in the Midwest, it would be a good policy to choose Wuhan as the region to expand the business. This not only reduces the cost of the company's expansion showing production capacity for related modules, but also provides an opportunity to get close to the production capacity of cooperating companies such as BOE, and to cooperate in various fields with real estate leaders.
We believe that in terms of capacity expansion, the company will take a cautious approach to investing and building gradually to achieve the optimal ratio of input to output. In addition, investment in new production capacity is also expected to prepare for the implementation of production of the new display ink technology that the company has stored in the early stages, with sufficient new production line capacity to support product development and finalization when mass production is required.
Profit forecasting and valuation
We expect that in 2017-2019, the company will achieve revenue of 3,452 million, 5.609 million, and 6.781 million yuan respectively, net profit of 73 million, 160 million, 233 million yuan, EPS of 0.09 yuan, 0.19 yuan, and 0.28 yuan. The corresponding PE is 126 times, 58 times, 40 times, and CAGR of 82.75%. We believe that the company is at an inflection point in its development and will have a high growth rate in the future, giving it an “increase in holdings” rating.
Risk warning
Testing fixture orders fell short of expectations, PV supply progress fell short of expectations, and data terminal sales fell short of expectations.
