Guomai Technology: China's leading Internet of things service provider. The company is a leading private network design and planning enterprise in China, actively arranging education, health care, park services and other businesses around the direction of the Internet of things, and is committed to realizing the layout of the whole industry chain of the Internet of things. In 2017, the company realized income of 1.516 billion yuan (YoY+23%) and net profit of 163 million yuan (YoY+111%).
Medium-and short-term growth: private design leaders are expected to benefit from 5G network construction. The company's core business needs to provide integrated solutions from consulting planning, design, optimization to maintenance, with a higher threshold. We estimate that the investment scale of 5G network will reach 1.2 trillion yuan, about 1.5 times that of 4G period. The company's network planning and design business was recognized by domestic operators and enterprise customers during the 4G construction period, and the business revenue reached about 300 million yuan during the peak construction period. we expect the revenue scale of this business to reach about 500 million yuan during the peak period of 5G construction.
Long-term growth space: the Internet of things will be the future development direction of the company. Large-scale Internet of things (mMTC) is one of the three mainstream application scenarios of 5G. The company launched the "last kilometer Internet of things big data strategy". At present, it has laid out key directions such as car Internet, Medical Union Network and genetic testing. The revenue from the technical services of the Internet of things accounts for about 50-60%, but the gross profit margin is only 5.4%. The company is currently carrying out business optimization and structural adjustment, and has gradually divested the terminal business with low gross margin since 2018, and its profitability is expected to be improved in the future. The purpose of the company's Internet of things Science Park operation business is to create the Internet of things ecology, to support and incubate the upstream and downstream industrial chain of the Internet of things with the mode of "industry + park supporting".
Growth foundation: Fuzhou Institute of Technology, an undergraduate school of the company, lays a solid foundation for the industrial layout of 5G and the Internet of things. Fuzhou Institute of Technology was upgraded to an undergraduate applied university in 2015. Guomai Science and Technology 5G and the Internet of things business need a lot of engineer resources, and the college can reserve a large number of interns and enrollment sources for the company. it is expected to help the company's main business to develop rapidly in the future. In the future, the number of students is expected to reach 10,000,12,000, and the tuition fee is about 25,000 yuan / year. We expect the company's education business income to be stable at about 25,000-300 million yuan in the future. Recently, with the introduction of favorable policies for the vocational education industry and the sharp rise in Hong Kong stock higher education companies, we believe that there is a big gap in market expectations for Fuzhou Institute of Technology.
Valuation and rating. Guomai Group, the controlling shareholder, contributed 150 million yuan to subscribe for Dingzeng in 2016 and 260 million yuan to increase its shares in 2018. We expect the company to make a net profit of 1.35,1.76 and 246 million yuan from 2018 to 2020. Combined with the valuation level of the comparable company in the 5G industry chain, we give the company a target price of 10.00 yuan (2019 PE 56X), covering the "buy" rating for the first time.
Risk hint: the progress of 5G network construction is not as expected, and the progress of the company's business transformation is not as expected.