Focus on security and locate the high-end optical faucet

United Optoelectronics is the first optical lens designer and manufacturer with optical zoom, optical anti-shake and other design capabilities, and it is in the leading position in the field of high-end monitoring lenses. We believe that the main advantage of the company is to occupy the downstream core customer resources, and through the continuous expansion of production and ASP to achieve the simultaneous improvement of the company's business scale and quality. With the gradual release of the company's ability to put into production in 2019, the company's performance is about to enter a new cycle of rapid growth.

Domestic security enjoys the pricing power of the industry, and it is still in the golden decade of rising volume and price.

China has overtaken North America to become the world's largest video surveillance market since 2015, and has maintained the world's fastest growth rate. As China's economy enters a new cycle of low growth and high inflation, we believe that the investment value of the blue-chip sector with pricing power will be more recognized by the market. We believe that:

1. With the continuous upgrading of the security video surveillance system, the equipment side will usher in the growth stage of both quantity and price.

2. From the perspective of downstream demand and future space, we believe that the overall growth rate of the security industry will maintain its current level in the next decade.

3. The gross profit margin of the security and prevention plate is ahead of other electronic plates, and the domestic leader enjoys the pricing power in the industry.

Our view is different from that of the market.

1. For the security industry, the market is generally worried that the trade war will have a direct impact on the overseas business of the leading domestic enterprises. However, our study found that Haekangwei's income from North America is very limited, accounting for less than 1% of revenue, and the impact of the trade war is minimal.

2. Compared with mobile phone and car market, security lens has comprehensive advantages in market scale, compound growth rate and ASP; at the same time, domestic replacement of security lens has industrial advantages.

Risk hint

The cost of materials has risen sharply; the progress of introducing major customers into production has been lower than expected; and the competition in the industry has intensified.

Maintain the "overweight" rating

We are optimistic about the company's technology and market capabilities, and are full of confidence in the long-term needs of the security market. The company is expected to earn 0.52 euro per share in 18-20, with a profit growth rate of-10.9% / 37.9% and 69.8% respectively. In the coming year, the reasonable valuation range is 34.7-43.5 yuan, maintaining the "overweight" rating.