Investment suggestion
Fenda Technology announced 3Q18 results: operating income in the first three quarters was 2.411 billion yuan, up 34.42% from the same period last year; net profit attributed to the parent company was 262 million yuan, down 5.89% from the same period last year, slightly lower than the previous forecast limit of 0-30%. Of this total, 3Q18's single-quarter operating income was 986 million yuan, an increase of 11.43% over the same period last year, and its net profit was 116 million yuan, down 21.64% from the same period last year. The lower-than-expected three-quarter report was mainly due to the poor performance of Opunda's metal accessories business, which suffered a loss of more than 10 million in the first three quarters despite making great efforts to expand the automotive and medical markets. At the same time, the company forecasts full-year net profit of 1000-50 million, corresponding to 4Q18 loss of 212-252 million yuan, mainly because Orpunda provides inventory and goodwill impairment, respectively, affecting about 200 million profits. Excluding the impact of impairment, the annual performance is basically the same as last year.
Downgrade the company to neutral and lower the target price by 46% to 3.55 yuan for the following reasons:
Metal appearance parts demand decline: the company's metal parts business mainly includes Fuchengda metal functional parts, Oupengda metal appearance parts. Fu Chengda is one of the suppliers of Apple Inc metal functional parts. The contribution of 3Q18 performance is close to 90 million, and the cumulative contribution of 1-3Q18 is 1.3-140 million, which is basically up to expectations. However, Opunda supplies metal housings to Vivo, Sony Group Corp and other customers, which is greatly affected by orders and selection fluctuations. It lost more than 10 million in the first three quarters of this year. In the case that the metal casing is replaced by glass, part of the company's inventory and goodwill are impaired, and Opunda is also gradually transforming into automotive, medical, e-cigarette and other markets. We have lowered our revenue growth forecast for next year to-36% and 5%.
Trade frictions and rising costs are a drag on speaker business growth: speaker business has benefited from domestic smart speaker volume this year and achieved good growth compared with the same period last year; however, under the influence of trade frictions and rising costs of components, packaging, and labor, overseas multimedia speaker and Bluetooth speaker business has declined, affecting the growth level of speaker business, while higher costs also have a greater impact on profitability. Since September, the price of components has fallen somewhat, and the cost pressure is expected to be partially alleviated. We have reduced the growth rate of annual speaker business revenue to 34% and the gross profit margin to 18%.
What is the biggest difference between us and the market? The metal appearance of mobile phone is at risk of being replaced.
Potential catalyst: Apple Inc stock situation in peak season, domestic speaker market trend.
Profit forecast and valuation
We downgraded our earnings forecast for 2018 Universe by 93% to 0.24 yuan, and downgraded it to neutral, mainly due to the decline in demand for metal accessories, which led to a decline in the performance and impairment of Opunda. The current share price corresponds to 187.1ax 15.3 times Pax E in 1919, and the target price is reduced by 46% to 3.55 yuan, corresponding to 15.0 times Ppace E in 19 years, which is 2% lower than the current share price.
Risk
The metal appearance of mobile phone is at risk of being replaced; the risk of impairment of Opunda