Event: the company released its 2018 annual report, with annual revenue of 1.82 billion yuan, an increase of 2.4% over the same period last year; net profit of 24.707 million yuan, compared with a loss of 512 million yuan in the same period last year; and basic earnings per share of 0.03 yuan.
Divest the loss-making assets and focus on the main communications industry, and the performance will turn around and come out of the trough. The company disposed of two long-term loss-making wholly-owned subsidiaries, Dafu heavy Industry and Chengdu Dafu, and the sale of Dafu heavy Industry increased the company's net profit by 160 million yuan. At the same time, the company terminated Bailifeng and other mergers and acquisitions and focused on the main communications industry. In recent years, as the communications industry has passed the peak of 4G construction, and 5G construction has not yet started, the company has repeatedly planned to find new growth points through epitaxial mergers and acquisitions, but the results are not satisfactory. Now the company to re-establish the "focus on the main business, light" strategy, is expected to get out of the previous trough of development.
The prosperity of the industry is sure to pick up, and 5G brings new RF opportunities. At present, the three major operators are gearing up for commercial trial of 5G, and it is expected to officially open the curtain of 5G construction by the end of 2019. Operator capital expenditure Capex has ended three consecutive years of decline, back to the growth track, the industry boom rebounded. The Massive MIMO technology used in 5G antennas requires the radio frequency path to increase exponentially, from 2T2R in the traditional 4G era to 64T64R, or even 128T128R. Ultra-dense networking brings a substantial increase in the amount of antennas, and the superposition of the two will lead to an order of magnitude increase in the market demand for filters. The company has been deeply cultivated in the RF industry for many years, has a stable market share, and is expected to benefit from the 5G construction.
Comprehensively enhance independent R & D and manufacturing capabilities, give full play to the advantages of products and customers. The company has the ability to provide "metal cavity + metal resonant rod", "metal cavity + dielectric resonant rod", "dielectric waveguide" and other 5G filter products, all kinds of filters have been certified by core customers, and some products have been supplied in bulk. In the aspect of dielectric waveguide filter, the company has the advantage of autonomous vertical integration of the whole process of ceramic powder development-molding-automatic debugging-automation equipment, and uses its own equipment in many links. The company has accumulated profound customer resources, is Huawei's long-term partner and core supplier for many years, has won the honor of Huawei's dominant core supplier for six consecutive years, and has also won a share in the supply system of major equipment manufacturers such as Ericsson and Nokia.
Benefit from 4G high value, 5G high flexibility, maintain "overweight" rating. We are optimistic about the change of the company's business strategy and benefit from 4G low frequency ploughing and 5G construction. We predict that the EPS from 2019 to 2020 will be 0.25pm 0.43pm 0.56 yuan respectively, maintain the "overweight" rating, and give the target price 19 yuan.
Risk hint: 5G construction progress is not as expected; increased competition in the industry leads to a decline in gross profit margin.
