1H19 performance is lower than we expected.
Fanta Technology announced 1H19 results: revenue of 1.48 billion yuan, an increase of 3.9% over the same period last year, and net profit of 75.05 million yuan, down 48.4% from the same period last year, lower than we had expected. Of this total, 2Q19's single-quarter income was 803 million yuan, up 1.9 percent from the same period last year, and its net profit was 26.71 million yuan, down 70.8 percent from the same period last year.
The poor performance of 1H19 is mainly due to: 1) Oupengda lost 44 million yuan due to relocation and inventory disposal; 2) the overall metal structure business fell 31.2% due to downward mobile phone shipments and increased competition; 3) Sino-US trade friction led to a decline in export orders for speakers, and the growth rate of 1H19 speaker business was 12.5%, which was slower than we expected.
Trend of development
Smart wearable business is the biggest surprise. 1H19's smart wear business revenue was 180 million yuan, an increase of 1300% over the same period last year, mainly from the growth of Huawei bracelets, Philips watches and Decathlon bracelets. Over the years, the company has gradually seen results in the layout of smart hardware. We expect the annual revenue to reach more than 500 million yuan, and the future 5G AIOT era will also benefit.
The outlet of the speaker begins to recover, and the smart speaker is still bright. Exports of 1H19 traditional speakers have declined due to trade frictions between China and the United States, but smart speakers have performed well, so that the speaker business is still growing in double digits compared with the same period last year. We have seen signs of a pick-up in overseas orders for traditional speakers from July to August, and the peak season is expected to come earlier than September-October in previous years, while smart speakers continue to be strong, and we still maintain our annual speaker business growth forecast of 44%.
The worst of metal parts is gradually over. In the past two years, the company's metal parts business has encountered great challenges, especially mobile phone metal accessories. Recently, under the background of the improvement of Huawei's shipments and localization, the domestic metal parts market has warmed up, and the company's Opunda has also re-entered the Vivo supply system. Superimposed smart door locks, e-cigarettes, smart home and other requirements, the company's metal parts business is expected to gradually resume.
Profit forecast and valuation
Taking into account the downside of smartphone shipments and the impact of trade frictions between China and the United States, we downgrade the company 19max 20e EPS 15% to RMB 0.20. 26. The current share price is equivalent to 19e 22.5 times PCME. The target price of neutral and 5.00 yuan is maintained, corresponding to 19e 25.0 times Ppace E, which is 11% higher than that of the current one.
Risk
Downward smartphone shipments; risk of trade friction between China and the United States.