I. Incident Overview
On April 24, the company released its 2018 annual report. It achieved annual revenue of 2,593 million yuan, an increase of 13.41% over the previous year; the net profit of the mother was 132 million yuan, an increase of 1.12% over the previous year. In the first quarter, operating income was 597 million yuan, a year-on-year decrease of 6.42%; net profit of the mother was 20.38 million yuan, a year-on-year decrease of 59.41%.
II. Analysis and Judgment
Revenue growth is stable, and transformation provides the driving force for performance growth
In 2018, the company achieved annual revenue of 2,593 billion yuan, an increase of 13.41% over the previous year, due to the increase in communication component revenue; Guimu achieved net profit of 132 million yuan, an increase of 1.12% over the previous year. Due to the company's continuous transformation and upgrading, high-value-added products became the driving force for performance growth. After the subsidiary Jinnuo Factoring calculated asset impairment losses, Guimo's net profit increased slightly. The cost rate during the year was 16.03%, a slight decrease from 16.25% in 2017, with R&D expenses increasing by 30.32%. The gross profit margin was 23.89% in 2018, a slight decrease from 2017. Operating revenue of 597 million yuan in the first quarter was 597 million yuan, down 6.42% from the previous year; net profit of 20.38 million yuan was achieved, down 59.41% from the previous year. The main reasons were ① due to equipment model adjustments, orders and delivery of special products fell short of expectations; ② orders in the communications sector increased but product delivery and customer pick-up were delayed; ③ the transfer of Jinnuo Commercial Factoring Company also had a certain negative impact on the company's performance.
The technical advantages in the 5G field are remarkable, and the PCB market size is considerable
The company's traditional business is the development and production of high-end RF cables. The products include but are not limited to products such as high-speed transmission inside and outside the cabinet, optical transmission, radio frequency transmission, power transmission, 5G antenna supporting core components, and data center integrated wiring. At this stage, the company is focusing on the development and manufacture of 5G products, including PCB/PCBA for 5G antennas, optoelectronic composite cables, and board-to-board connectors. In 2018, the communication cable, communication components, and PCB sectors achieved revenue of 1,123, 734 and 420 million yuan respectively, up -7.55%, 61.00% and 11.32% year-on-year. The coaxial cable business continued to decline, and the company's transformation and upgrading continued. During the reporting period, the company obtained technical capabilities for pioneering domestic products such as tunable optical modules and 100G long-range unrelated second-generation modules in 5G application scenarios, and achieved technological innovation in the PCB field and cooperated with customers to customize 5G antenna products. According to the China Report Network, it is estimated that within the next 5 years, China will still be the region with the fastest growth in PCB production. By 2020, the market size of China's PCB industry will reach 35.9 billion US dollars, and the company has broad room for growth in this sector. 2019 is considered to be the first year of 5G. Construction of commercial base stations has already begun, and the company's prospects in the 5G communication field are promising.
The military industry sector is rich in research and is being promoted jointly in various fields
In recent years, the company has actively promoted cooperation with research institutes and set up a number of subsidiaries and joint ventures involving electromagnetic compatibility (EWC) technology, integrated underwater defense systems, etc. The subsidiary Jiangsu Wanbang continues to develop radar T/R radio frequency chips. During the reporting period, the company's electromagnetic compatible cables have been applied to airborne, shipborne, bulletborne, and vehicle-mounted scenarios, and are expected to be integrated into large-scale equipment and large-scale systems. The holding subsidiary Wanbang Microelectronics achieved revenue of 70.41 million yuan and net profit of 29.94 million yuan for the full year of 2018. The profit margin in the radar RF chip field reached 42.52%. With rapid development, it will make a great contribution to the company's performance in the future. Benefiting from the continuous increase in defense and military spending and the impact of military reform to eliminate the “lax before, then tight” industry pattern of the 13th Five-Year Plan, the company's military goods business is expected to usher in rapid growth.
III. Investment Suggestions
The company focuses on developing the 5G field and adheres to the civil-military integration strategy. We are optimistic about the company's long-term development. The company's EPS from 2019 to 2021 is expected to be 0.26, 0.37, and 0.49 yuan respectively. The corresponding PE is 53X, 37X, and 28X. Comparable with the company's average valuation of 54X, it is given a “recommended” rating.
IV. Risk Reminder
1. Orders continue to decline due to model equipment; 2. Risk of impairment of goodwill