Incident: The company released its 2018 annual report and 2019 quarterly report. The revenue for 2018 was 264 million yuan, an increase of 2.41% over the same period last year, and net profit attributable to owners of the parent company was 103 million yuan, a decrease of 1.26% over the same period of the previous year. Revenue for the first quarter of 2019 was $73 million, up 3.70% from the same period last year, and net profit attributable to owners of parent companies was $29 million, down 2.02% from the same period last year. The increase in R&D expenses is the main reason for the decline in the company's net profit. In 2018, R&D investment was nearly 29 million yuan, an increase of 34% over the previous year. The company actively develops new business lines to provide impetus for future company growth.
The stress test membrane opens up a new channel for growth, and future profits will grow quarter by quarter
The downstream pressure test membrane is mainly in the fields of electronics, communications and automotive electronics. In 2018, the domestic market space was around 1 billion yuan, and the annual growth rate exceeded double digits. Currently, Japan's Fuji market accounts for more than 80%, and the gross margin of related imported products exceeds 85%, mainly due to high technical barriers. The company's products are aimed at domestic replacement. Currently, a new production line has been put into operation. Downstream customers include panel manufacturers such as Tianma, BOE, CLP Panda, and Youda Optoelectronics. It is expected that the business will begin to grow in volume in 2019, and its performance will be flexible enough in the long run.
EMI shielding film and conductive adhesive film have become the driving force of 5G products
EMI film and conductive adhesive film are raw materials for FPC production. The total market size of the two products is about 3-4 billion yuan, and the corresponding profit margin is a total of 7-800 million yuan. As a newcomer, the company's products have entered the supply chain of downstream FPC companies such as Dongshan, Hongxin, and Jingwang, and the performance of some products is close to overseas. With the advent of 5G communication, signal crosstalk will become the core of communication to be solved. Therefore, the proportion of shielding material area in FPCs will gradually increase, leading to a rise in demand for EMI shielding materials. I am optimistic that the company's performance will increase due to its layout in the 5G field in the next 2-3 years.
Profit forecasts and investment suggestions:
Electronic raw materials fall into segments with many advantages such as high industry barriers, high product gross profit margins, and high cash flow. We are optimistic that Lekai New Materials' layout and R&D investment on the electronic materials side is expected to replace Japanese companies in the segment. The performance is flexible enough. The company's performance is expected to be 136 million yuan, 217 million yuan, and 287 million yuan respectively in 2019-2021, and the corresponding PE is 25X/16X/12X.
Risk warning: Product introduction customers fell short of expectations, and the increase in new entrants led to a decline in prices.
