The country is focusing on core business sectors, and performance is expected to increase throughout the year. The company's revenue for the first three quarters was 3,331 million yuan, an increase of 5.49% over the previous year; Guimu's net profit was 469 million yuan, up 10.52% year on year; after deducting net profit of 369 million yuan, up 0.35% year on year. On a quarterly basis, Q3 revenue was 998 million yuan, down 10.70% year on year; Guimu's net profit was 119 million yuan, down 17.09% year on year, after deducting 75.63% year on year; short-term performance was under pressure. The forecast for 2018 is net profit of 595-773 million yuan, an increase of 0-30% over the previous year. The new management focuses on core businesses such as optoelectronic cables, communication equipment, and network security, concentrates resources to build competitive advantages, and gradually increases overall profitability. Q3 gross margin was 30.22%, an increase of 1.85 pct over the previous year.
Firmly push forward the transformation and upgrading strategy and increase investment in security services. The products and solutions in the company's cybersecurity business segment mainly cover the three areas of backbone network cybersecurity, public safety and urban security. The company has increased R&D investment to strengthen its technological leadership, increased direct sales network deployment, and launched products such as SDN gateways and big data collection equipment based on the original ODN equipment to enhance its overall comprehensive strength. Baizhuo Network won the bid for China Telecom's SDN equipment collection to stimulate performance. In 2018, Baizhuo promised 132 million yuan of performance, and continued to grow rapidly.
The fiber-optic cable market is stable, and self-sufficiency in optical bars increases gross profit margins. The overall market demand for optical fiber optic cables is stable. The company has now reached full production capacity of 600 tons of optical bars. In addition, Corning supplies about 700 tons of optical bars per year, and the annual production capacity of optical fiber has reached 42 million core kilometers. The significant increase in the company's self-sufficiency ratio of optical bars has led to a decrease in costs. The gross margin of the optical fiber and cable business reached 32.89% in the first half of the year, and there is still room for improvement in the future.
Repurchases enhance investor confidence and improve the company's long-term incentive mechanism. The company announced a share repurchase plan in October. It plans to use its own capital of 0.5-200 million yuan to repurchase shares to implement equity incentive plans, employee stock ownership plans, or deregister and reduce registered capital in accordance with law. After successful implementation, the company will be able to effectively improve the incentive mechanism or increase the return on investment.
Profit forecast: The estimated revenue for 2018-2020 is 4,836, 54.70 and 6.269 billion yuan respectively; EPS is 0.56, 0.67, and 0.82 yuan respectively, corresponding to the current stock price PE of 12.4, 10.3, and 8.4 times, maintaining the “increase in holdings” rating.
Risk warning: Security business progress fell short of expectations; optical fiber gross margin declined.
