Performance review
20181H performance meets expectations
Fanta Technology announced 1H18 results: operating revenue of 1.43 billion, an increase of 56.8% over the same period last year; net profit belonging to the parent company was 145 million, up 12.2% from the same period last year, which was within the range of 10-30% of the previous forecast, in line with expectations, corresponding to a profit of 0.10 yuan per share. At the same time, net profit from January to September is forecast to grow by 0-30%, corresponding to a year-on-year decrease of 11% to 66% in 3Q18 net profit.
The high revenue growth in the first half of the year was mainly due to the substantial growth in speaker business and Fortune's merger, but due to the impact of rising prices of components and increased competition in metal parts, gross profit fell sharply by 7.9 percentage points to 20.7%, resulting in net profit growth much lower than revenue.
Trend of development
Speaker business: smart speakers grew faster than expected, but profits were challenged: the revenue of multimedia speakers in the first half of the year was 470 million, a substantial increase of 75%. Under the circumstances that the deterioration of the trade environment affected overseas business, intelligent speakers such as Tmall and Ding Dong became the main growth points in the first half of the year. Looking forward to the second half of the year, Skyworth, Haier, Huawei and other intelligent speakers will gradually increase, some will also be accompanied by display functions, the value of a single unit has been improved. With the maturity of terminal AI chips and voice applications, the future growth of intelligent speakers is expected, and we raise our forecast of speaker business revenue. However, it is worth noting that due to the increase in the price of passive components and the increase in labor costs, the profitability of the speaker business is also challenged. The gross profit margin fell 7.2 percentage points to 17.7% in the first half of the year. We expect that the cost pressure will not ease until next year.
Metal parts: expand new business to offset the decline risk of mobile phones: metal accessories revenue in the first half of the year was 590 million, an increase of 112% over the same period last year, mainly from Fuchengda's consolidated watch. In the first half of the year, Fortune Chengda had an income of 480 million yuan and a profit contribution of 48 million. In the third quarter, Apple Inc's new machine started to stock. Fu Chengda also increased more than a dozen material numbers compared with last year, and began to usher in upward elasticity in the third quarter. Oupengda was greatly affected by the decline in domestic machine orders in the first half of the year. On the whole, while the company's metal parts business is under pressure on the mobile phone side this year, it will open up e-cigarette, medical, automobile and other markets to resist the risk of decline in the mobile phone field.
Profit forecast
Due to the pressure on the cost side, we have lowered our 2018 Lexus profit forecast by 17% from RMB 0.32max 0.39 to RMB 0.26max 0.33.
Valuation and suggestion
Although profitability has been challenged this year, we expect profit margins to pick up next year as the price of components falls. Coupled with the company's growth in smart speakers and maintaining its recommended rating, the company has revised its target price from 21% to 6.55 yuan, corresponding to 19.7 times 18max for 25.0pm in 1919, with 37% room for the current share price.
Risk
The development of intelligent speakers is not as expected, and the competition for small metal pieces is intensified.