Events:

The company signed a "Cooperation Agreement" with the people's Government of Hanjiang District, Putian City, intending to invest in high-end TFT display module project, COF comprehensive screen display module project, flexible OLED display module project and touch display integration module project in Hanjiang District, Putian City. The landing of part of the company's business transfer will be undertaken by Fujian Helitai, a wholly owned subsidiary. The total investment of the project is not less than 2.5 billion yuan: the total investment of the first phase is 1.5 billion yuan, and the planned investment of the second phase of the project may be no less than 1 billion yuan with equipment.

Main points of investment:

Layout of high-end comprehensive screen and flexible display module, full preparation for 5G. 2019-2020 is the year of 5G. The arrival of 5G is expected to give rise to an upsurge of replacement of smartphones and inject new vitality into the weak mobile phone market. in addition, the innovation of screen shape is one of the most important links in smartphone innovation in recent years. as a result, it has led to the application and popularity of high-end display panels such as comprehensive screen display and flexible display. For zero-component enterprises, completing the extension and filling of the industrial chain before the maturity of the 5G terminal market is expected to further reduce the overall cost and expand the core competitiveness. The company's project will be carried out in three phases, with an investment of 1.5 billion yuan and no more than 1 billion yuan respectively, with a design capacity of 1000 million pieces per month, which will be put into production at the end of 2019 and 2021 respectively. The details of the third phase will be determined by the company according to the market and sales conditions at that time. The construction of this project is an industrial upgrading for the 5G market, focusing on strengthening the customized development, production and supporting capabilities of high-end flexible screen display modules. Among all the component products in the layout of Helitai ultra-long industrial chain, the screen module is a very core component, and it is also an important support for the performance and interspersed structure of other products such as FPC, camera, fingerprint identification and so on. In the current application background of high proportion of comprehensive screen, customized flexible screen, and mobile phone design heavily depends on "appearance" differentiation, this is obviously an important measure to strengthen and enhance the company's competitiveness in high-end and flexible display modules related fields.

The Putian government is responsible for the initial operating funds, and there is no capital pressure on the company. The raising of the investment funds (1.5 billion yuan) of the first phase of the project is the responsibility of the enterprises designated by the people's Government of Hanjiang District of Putian City, while the company is mainly responsible for providing construction, design and procurement plans as well as all the operation work after the project is put into production. and pay the agreed price and interest within 5 years to obtain all the equity of the project company. The company's large-scale horizontal expansion in the past few years has made the capital chain more fragile, and finally had to transfer its controlling stake to state-owned assets, in order to seek momentum for continued growth on the basis of ensuring the "scale". Although after the introduction of Fujian electronic information as a major shareholder, after half a year of integration and baptism, the state is now much more abundant, but after the "turbulence" in the third quarter of last year. How to prepare for 5G with less financial burden is one of the difficult problems that the company has to face at present, and the arrangement of investment funds for the first phase of this project obviously meets the requirements of the company.

Fujian Electronic Information Group integrates decisively and forcefully. Since the completion of the share agreement transfer between the company and Fujian Electronic Information Group in the fourth quarter of last year, with the help and support of the Electronic Information Group, the improvement of the financial situation and the downsizing of the non-profit business have been progressing in an orderly way: the advance payment given by the group to the listed company is very timely, which has improved the financial situation of the listed company and solved the problem of shareholder pledge. It also addresses the funding needs of some businesses (such as the rapid landing of factories in India) Sell part of Guangyu battery shares, obtain investment income to return cash; transfer Lan Pei's controlling stake, reduce the capital outflow of listed companies, and focus on core business. Compared with the equity transfer of other companies, Fujian electronic information on Helitai's support and integration efforts are obviously more bold and powerful, considering that the electronic information group also has Huajiacai (panel display), Zhongnuo (mobile phone ODM) and other related business sectors, the future can be linked with Helitai as a whole, the industry complementary cooperation space is still very large, which is beneficial to further improve the company's industrial status.

Profit forecast and investment rating: maintain buy rating. With the support and integration of Fujian Electronic Information Group, the company's financial health has improved rapidly, and the cooperative construction of this high-end flexible display panel project is the company's root in Fujian (Putian). An important step in further promoting the strategic layout of the company. Facts have proved that the combination of Fujian Electronic Information Group and Helitai is not just an one-time financial support, "closely combine, give full play to each other's advantages to become bigger and stronger", from the first day of cooperation between the two sides, has been seriously running towards this long-cherished wish, the most difficult 2018 has already passed, the foundation of 2019 water replenishment, fertilization, pruning and leaf pruning has gradually become solid, and then the company will gradually realize its growth. Move towards a new stage of bumper harvest. It is estimated that the company's net profit from 2019 to 2021 is 15.35,16.40 and 2.364 billion yuan respectively (the 2021 increment assumes that the 5G terminal will enter the maturity period in 2021), and the current stock price corresponds to 10.23,9.58 and 6.64 times PE respectively.

Risk tips: 1) the repayment risk of brand customers downstream of the smart terminal supply chain; 2) the evolution of 5G smartphones is not as expected; 3) the relocation of domestic supply chain caused by trade war