Recent major announcements: Ericsson and Nokia have continued to receive good news, domestic and overseas markets have made great strides in the integrated 5G test antennas developed for Nokia Bell Laboratories:
On the evening of January 22, the company announced that it undertook Nokia Bell Laboratories's 5G high and low frequency integrated test antenna (28GHzRFmodule and 3.5GHzRFmodule) projects. Assembly and preliminary tests have been completed, and breakthrough progress has been made in research and development.
2. The company once again won the bid for base station support for the Ericsson China market, accounting for 62.36%, the company announced on the evening of January 21. Recently, the company successfully won the bid for Ericsson's 2019 VPA Global Negotiation (China) tender. The winning product was the base station supporting product. Up to now, the number of product codes won by the company this time accounts for about 62.36% of the total number of codes that Ericsson has bid for in the base station supporting product category in China.
3. The company won Ericsson's bid for the overseas market of 0.6 billion US dollars, an increase of 275% over the previous year. On December 7, 18, the company announced that it won the bid for Ericsson's global negotiations (overseas) of 0.6 billion US dollars for 4G/5G base station materials (+275% year-on-year). The company has won the bid for Ericsson, the world's leading telecommunications company, twice in a row, which strongly proved its competitiveness in the field of supporting products for communication base stations, and verified that it has become a supplier of high-quality 5G products in the international market, laying a solid foundation for the company to further expand its international business.
5G core suppliers: The physical layer, connectivity media, and wireless core technology are widely covered on January 22. According to the Hong Kong Wande News Agency quoting Panorama Network, Jin Xinnuo said on the interactive platform that the company currently has 5G-related products including: PCB/PCBA for 5G antennas, beam control chips and power control chips, 10\ 25\ 100G optical modules, optoelectronic composite cables, high-speed components for data centers, board-to-board connectors, etc. We believe that the company's current products are all high value-added products in terms of variety. The physical end realizes the conversion of light to electricity, the wireless end goes from RF PCBs to core RF chips, the connection medium from communication optical modules to various components of data centers, and the connectors supply signal connection technology in the entire 5G field.
We believe that the company is expected to benefit from the country's “new infrastructure” development opportunities for 5G communications construction and military informatization needs, and adapt to the times and enter a fast track of development. With the advent of the 5G communication era and the continuous advancement of military informatization, the company, as an established high-frequency high-speed signal interconnection enterprise, immediately ushered in a new inflection point in its main business: the share of high-margin business continued to increase, and the performance of military and civilian products such as modules and user lines, high-frequency high-speed PCBs, and RF chips all ushered in a steady and rapid increase. (1) Looking at growth capacity, on the basis of continuous iterative optimization of the company's product structure, revenue for the first three quarters of 2018 was 1.93 billion yuan, +19.2% year on year, and net profit was 111 million yuan. Compared with 2017, there was a significant improvement compared to 2017, and performance reached a clear inflection point.
(2) In terms of profitability, the company is in the same gross margin level as Amphenol, AVIC Optoelectronics, etc., which is about 7.74 percentage points higher than traditional signal-connected companies. (3) Looking at the product structure, 2018H1's product revenue with a gross margin level of 24% and above has increased to 50.17% of total revenue.
The company's main business has reached an inflection point, and it is hoped that it will continue to benefit from the rising demand in the communications and military industries.
Profit forecast and investment rating: Judging from previous performance, the company's revenue for 18-20 is estimated to be 2721/36.73/4.775 billion yuan respectively, net profit of 153/252/324 million yuan respectively, PE is 41.90/25.41/19.78x respectively, and the target price remains 12.8 yuan/share, maintaining the “buy” rating.
Risk warning: 5G commercial slowdown, telecommunications carriers' capital expenses fell short of expectations, and confirmation of military orders was delayed.