Event: The company released the 2018 performance report and the 2019 Q1 earnings forecast. The company expects to achieve revenue of 4.766 billion yuan (+59.41%) for the full year of 2018, and net profit of 155 million yuan (+51.44%). It is estimated that the net profit of the mother in 2019Q1 will be in the range of 0-10 million yuan, turning a loss into a profit.
Benchmarking the “module+platform” model of Telit Communications in the UK, it provides a “cloud-based” IoT comprehensive solution. In 2018, the company maintained its strategic position on the Artificial Intelligence Internet of Things (AIoT). On the cloud side, the company Ella of the United States jointly set up a joint venture in China to continue to localize the Ela Cloud platform in China, expand the application fields of the Ella Cloud platform, and provide customized cloud application services. At the same time, it signed strategic cooperation agreements with the three major operators of China Mobile, China Telecom, and China Unicom, becoming China Telecom Group's IoT white home appliance cloud platform partner and China Unicom Group's exclusive cloud platform partner in the consumer electronics field. On the end side, the company continues to consolidate its position with the highest number of IoT module shipments in the world. Not only has the number of Longshang Technology agents increased by more than 100%, but Xinxuntong continues to make efforts in automotive, smart POS and other industries, continuously improving the company's operating efficiency and product competitiveness through R&D collaboration and supply chain integration initiatives.
Xinxuntong was included in the consolidated report, and the IoT industry chain was further improved. The company acquired IoT module manufacturer Xinxuntong in December 2017. Xinxuntong's wireless communication module was one of the first products to enter the wireless communication module market, and module shipments in 2015 and 2016 ranked first in the world. Xinxuntong was included in the company's consolidated statement in March 2018. As of December 2018, the total assets of Rihai Smart reached 6.880 billion yuan, an increase of 38.44% over the previous year, and the IoT industry chain was further improved.
Profit forecasts. Sunsea Intelligence continues to rapidly advance the “cloud-based” IoT strategy through epitaxial integration and the introduction of excellent teams. On the “end” side, it vigorously consolidated its R&D capabilities and production scale of module products, and successively acquired 68.09% of Longshang Technology's shares and 100% of Xinxuntong's shares to create a leading domestic IoT module leader; on the “cloud” side, it occupied a strategic high ground by investing in Ella IoT (9.09% shares), and teamed up with China Telecom to promote the launch of the Ela Cloud platform in China, and help the company build a leading platform provider for cross-field IoT solutions in China. We expect the company's revenue from 2018 to 2020 to be 4,766 million yuan (+59%), 6.833 billion (43%), and 8.991 billion (+32%) yuan respectively, and net profit attributable to shareholders of the parent company is 154 million yuan (+51%), 209 million (+36%), and 267 million (+28%) yuan respectively. The corresponding EPS is 0.49 yuan, 0.67 yuan and 0.86 yuan respectively. Considering that the IoT module industry is expected to grow in volume, that the company enjoys a certain valuation premium as an industry leader, and that companies in the industry have comparable valuations, it was given 38-46 times PE in 2019, corresponding to a reasonable value range of 25.46-30.82 yuan, giving it an “superior to the market” rating.
Risk warning. The development of the Internet of Things falls short of expectations, and competition in the industry is too fierce, leading to a risk of a decline in gross margin.
