Incident: On March 28, 2019, the first-generation graphics processing chip independently developed by Changsha Shaoguang, a wholly-owned subsidiary of the company, received a purchase order from China's XX Industrial XX Applied Technology Research Institute. The total order amount was 1.5 million yuan, and delivery is scheduled for 2019.
Self-controlled high-performance graphics processing chips have entered the mass production promotion stage, and future orders can be expected. The localized autonomous SG6931 graphics processing chip developed by Shaoguang in Changsha is mainly used in the display control part of main combat equipment and is the core component of the system. The chip has completely independent intellectual property rights and is fully guaranteed in terms of information security and supply capacity. In the future, it is expected to further expand the market for supporting weapons and equipment applications, civilian GPUs, etc., to achieve autonomy and control in the GPU field. We believe that the signing of this contract indicates that the new high-performance graphics processing chip, a new product independently developed by Shaoguang of Changsha, has entered the stage of mass production and promotion. It is expected to become a new growth point for the company's performance in the future, increasing the company's overall performance level.
Military chemicals have gone hand in hand, and net profit nearly doubled in 2018. In 2018, the company achieved net profit of 505 million yuan to the mother, an increase of 98% over the previous year. The main reason is the improvement in the efficiency of internal operations and management and the increase in the contribution of the military industry to overall performance. On the chemical side, profits have increased dramatically, benefiting from continued industry prosperity and increased management efficiency; on the military side, some military products were supplied in batches, and orders were clearly released. We believe that the company's chemical product boom cycle is expected to continue, which is a major stable profit point for the company in the future. At the same time, the stable cash flow brought by the chemical business will play a good supporting role in the development of the company's military business. Benefiting from the accelerated release of military business orders, combined with the subsequent launch of new products contributing to incremental performance, the military sector will become the most important growth point for the company's future performance.
Profit forecasts and ratings. The company's chemical business benefited from supply-side reforms and environmental protection policies, and ushered in a period of rapid growth with sharp increases in volume and price; military chips and integrated circuits have long benefited from autonomous controllability and localized replacement policies. We are firmly optimistic about the company's future development prospects. It is estimated that the company's revenue from 2018 to 2020 will be 3,845 million yuan, 4.345 billion yuan, and 4.779 billion yuan respectively; net profit attributable to the parent company from 2018 to 2020 will be 505 million yuan, 699 million yuan and 852 million yuan respectively; EPS will be 0.73 yuan, 101 yuan and 124 million yuan respectively. PE corresponding to the current stock price is 17 times, 12 times and 10 times, respectively, maintaining the “buy” investment rating.
Risk warning: The prosperity of the chemical industry fluctuates; the performance of military subsidiaries falls short of expectations.
