Description of the event
On April 22, 2019, the company released its 2018 annual report and 2019 quarterly report. In 2018, the company achieved revenue of 3.156 million yuan and Guimu's net profit of 77 million yuan, up 26.94% and 26.69% respectively; in the first quarter of 2019, it achieved revenue of 690 million yuan, an increase of 1.07% over the previous year, and Guimu's net profit of -4,2241 million yuan. The company plans to distribute a cash dividend of 1.80 yuan (tax included) for every 10 shares, adding 3 shares.
Incident comments
Losses were drastically reduced in the first quarter of 2019, and the PON business may continue to improve: benefiting from overseas demand for optical access terminals and high growth in wireless network equipment, the company's revenue and performance increased steadily in 2018; along with the year-on-year improvement in optical access terminal costs, the company's performance in the first quarter of 2019 was drastically reduced; recently, China Telecom and China Mobile's PON collection volume exceeded expectations, and the company's traditional PON business in 2019 is expected to continue to improve.
The advantages of 5G optical modules are remarkable, and the 400G digital channel layout is expected to benefit from the explosion of the industry: the acquisition of Oclaro related assets is high-end, with revenue structures of 100G and above accounting for more than 80% of revenue; the technical threshold for returning high-end products is high. The company's acquisition is expected to take advantage of Oclaro's technology, products and customer advantages, combined with future price advantages, and grow into a leading domestic telecom high-end optical module in the 5G era, gradually squeezing the market share of overseas manufacturers; the acquisition of assets with a rich 400G digital channel product line has been approved by major customers With the entry into force of the company's cost reduction measures, the market share is expected to gradually increase. The company's 400G DR4 based on a silicon optical scheme has been sampled.
Overseas mergers and acquisitions experience & large-scale manufacturing capacity, the integration results may soon be evident: MACOM (Japan) has achieved good integration results. The company is expected to reduce costs and increase efficiency in raw materials, manufacturing and management through experience and excellent manufacturing capacity; the company is stepping up maintenance of major customer relationships. Considering the high replacement costs of optical module suppliers and the thorough transfer of technology and products from this acquisition, the company may have successfully accepted major customers of purchased assets. Currently, it has quickly broken through individual cloud service providers and equipment vendors.
Profit forecasts and investment suggestions: The company's strong entry into the telecom and digital optical module markets through the acquisition of high-quality assets from overseas is expected to simultaneously benefit from the explosion in demand for 5G and high-speed digital optical modules to “overtake the curve”; the company has accelerated the deployment of small base stations. In 2019, 4G/5G integrated small base stations are expected to ship 100,000 to 200,000, which is expected to benefit deeply from 5G construction; benefiting from both cost and demand-side improvements, the traditional PON terminal business may continue to improve. The company's net profit for 19-21 is estimated to be $132, 1.95, and $275 million, respectively, corresponding to 38, 26, and 18 times PE, maintaining the “buy” rating.
Risk warning: 1. The demand for digital 400G and 5G optical modules fell short of expectations; 2. The results of mergers and acquisitions fell short of expectations.
