Matters:
The company released its 2018 annual report and 2019 quarterly report. In 2018, the company achieved revenue of 264 million yuan, +2.41% year on year; achieved net profit of 103 million yuan, -1.26% year on year; in Q1 2019, the company achieved revenue of 72.58 million yuan, +3.7% year on year, and Guimo's net profit of 29.93 million yuan, -2.02% year on year.
Commentary:
The electronic functional materials business grew exponentially, and the performance of traditional information anti-counterfeiting materials was stable: the company's electronic functional materials business had revenue of 6.84 million yuan (YoY +15924%) in 2018, achieving explosive growth at the performance index level; the information anti-counterfeiting materials business had revenue of 258 million yuan (YoY -0.22%), and the performance remained stable. Judging from profit indicators, the gross profit margin of the information anti-counterfeiting materials business in 2018 was 60.15% (YoY -1.81%), and the gross profit margin of the electronic functional materials business was 43.92% (YoY +28.96%).
The new electronic materials business accelerated the R&D market and created momentum for future high-certainty growth: the company spent 28.61 million yuan (YoY +34.28%) in 18 years, and the company strengthened the construction of a new 5G electronic materials business R&D system during the reporting period. The R&D expenses of the electronic functional materials business reached 21.22 million yuan (YoY +90.3%), accounting for 74% of the total R&D expenses. Relying on the horizontal expansion of the core technical capabilities of traditional businesses, the company's product matrix is in the process of continuous expansion. FPC products such as electromagnetic wave protective films and pressure test films have formed stable formulations, and mass production and market expansion have begun.
A comprehensive breakthrough in the 5G new materials product matrix is expected to help the company begin a golden growth period of the next 3-5 years: in terms of EMI materials, the company has sufficient production capacity reserves, has entered the supply chain of mainstream domestic brands such as Huawei and ZTE, and is expected to make progress for major international customers in the future; in terms of ACF materials, the company successfully verified by mainstream domestic manufacturers and is expected to supply H2 in batches in 2019; in terms of pressure test membranes, the company is the only domestic/second supplier in the world. It is expected to seize market share by fully breaking through Fuji's monopoly and fully entering major panel manufacturers such as BOE Oriental and ShenTianma.
Profit forecasts, valuations, and investment ratings. We maintain our forecast for the company's 2019-2020 results of 13.1 million and 202 million yuan respectively, and the forecast for additional 2021 performance is 266 million yuan. The corresponding PE is 24.2 times, 15.6 times, and 12.0 times, respectively. The company's main business is running smoothly, and the new electronic materials business is growing explosively, given the scarcity of targets and good valuation flexibility upward. Combining the company's 19-year performance expectations and industry valuation levels, we think the company's reasonable market value is around 40 times, with a target price of 42.8 yuan to maintain a “strong push” rating.
Risk warning: the risk of electronic material development and industrial base project construction and the risk that project benefits will not meet expectations; the risk that the future sales scale of electromagnetic wave protective film products will fall short of expectations; the growth of the thermal magnetic stripe business has stagnated under the EMV migration trend.
