The quarterly report was disrupted by multiple factors, and on-hand orders drove the company's growth in 19 years
On the evening of the 24th, the company released its 2018 annual report and 2019 quarterly report. The company achieved revenue and net profit of 2,593/132 million yuan in 2018, an increase of 13.41%/1.12% over the previous year. The company's 2019 quarterly report achieved revenue and net profit of Fumo was 597/20 million yuan, up -6.42%/-59.41% year on year, slightly lower than expected. The main factors behind changes in Q1 performance were 1. While communications orders were rising, product delivery and customer pick-up were delayed; 2. Affected by equipment model adjustments, orders and delivery of special products fell short of expectations; 3. Tianjin Factoring Company was no longer consolidated, leading to an 80.3% year-on-year decrease in minority shareholders' equity. The company has continuously received domestic and international orders from major customers Ericsson. We expect EPS to be 0.43/0.59/0.78 yuan in 19-21, downgraded to the “increase in holdings” rating.
Three fees are well controlled, and the proportion of high-margin businesses continues to increase
The main reason the growth rate of the company's net profit in 2018 was lower than the revenue growth rate was a 30.2% year-on-year increase in R&D expenses. Asset impairment calculated by Tianjin Factoring Company affected Guimu's net profit by about 16.75 million yuan. Excluding impairment, the company's net profit growth rate in 2018 was 14.6%. Looking at revenue by product, the company's original low-margin communication cable and fiber-optic cable business accounted for YOY-9.84pct. The share of high-margin non-coaxial cable business increased, and the company's transformation and upgrading continued to bear fruit. In 2018, the company's sales expenses ratio was 3.92% (YOY+0.53PCT), the management & R&D expenses ratio was 9.92% (YOY+1.02pct), and the financial expenses ratio was 2.19% (YOY-0.07PCT). Overall, the three fees were well controlled. At the same time, benefiting from the management of accounts receivable and a reduction in the net increase in factoring loans, the company's operating cash flow began to correct in 2018.
The company pays attention to R&D investment, and new products and markets can be expected to land
The company's R&D investment in 2016-2018 was 1,02/100/203 million yuan. The corresponding company's R&D investment accounted for 5.1%/4.4%/7.8% of revenue, respectively. The number of R&D personnel of the company in 2016-2018 was 257/302/412. It can be seen that the company continues to increase investment in R&D and equipment for new products. At present, the company has provided customers with 5G RF PCB products and sent samples to Huawei to test high-speed signal interconnection solutions. Furthermore, the company undertook the 5G high and low frequency integrated test antenna (28GHzRFmodule and 3.5GhzRFmodule) project of Nokia Bell in Shanghai, completed assembly and preliminary testing, and made breakthrough progress in research and development. It can be expected that new products and new markets will land in the future.
Orders from major customers continue to land to verify industry sentiment and the competitiveness of the company's products
We believe that global operators will continue to invest in 4G investment in 2019, and that heavy domestic FDD cultivation and traffic growth will drive 4G investment. Recently, the company has received continuous domestic (product category share of about 62.36%) and overseas (winning bid amount of about 60 million US dollars) from major customers, both in terms of amount and share, verifying the industry sentiment and the company's competitiveness in the field of base station ancillary products. We believe that as the global 4G boom continues, the company's product line is expected to maintain a steady growth situation.
The high-quality 5G radio frequency target is expected to benefit from 5G in the future and downgraded to the “increase in holdings” rating
We expect the company's EPS for 2019-2021 to be 0.43/0.59/0.78 yuan (19-20 was 0.44/0.60 before the adjustment. The reason for the adjustment was mainly due to the continuous increase in the company's R&D investment in revenue and the increase in R&D expenses in 19-20). Corresponding to the 19-21 PE was 29.9/21.9/16.6x respectively, keeping the target price unchanged at 14.08-15.40 yuan, and downgraded to the “increase in holdings” rating.
Risk warning: Project signing and execution fell short of expectations; 5G construction fell short of expectations; military business fell short of expectations.