Incident: On August 30, the company announced its 2019 semi-annual report, with 2019H1 revenue of 310 million yuan (-11.11%), net profit of 29.3096 million yuan (-48.25%), gross profit margin of 40.30% (-1.87pcts), and net interest rate of 8.67% (-8.78pcts).
Key points of investment
Revenue from the two core businesses of Navigation, Avionics fell short of expectations, and the company's revenue and profit both declined
The operating income of 2019H1 companies (310 million yuan, -11.11%) declined. Among them, the company's MEMS business and the performance of the company's three core businesses of navigation and avionics showed polarization: on the one hand, the company's MEMS business revenue (246 million yuan, +31.95%) grew rapidly with the expansion of production lines in Sweden while maintaining a high capacity utilization rate; on the other hand, due to delays in the finalization of some products, the price progress of some order users fell short of expectations and production delivery schedule adjustments, and the company's navigation business revenue (42 million yuan, -50.76%) and avionics business revenue (18 million yuan, -59.50%) were significantly higher Decline.
The company's net profit (29.3096 million yuan, -48.25%) and net interest rate of 8.67% (-8.78pcts) all declined. We expect the increase in the company's R&D expenses (390.29 million yuan, +96.84%) and management expenses (0.44 million yuan, +34.37%) mainly due to the decline in revenue from system-level inertial navigation products and avionics products with high gross margins in 2019H1. At the same time, in the context of increased R&D investment, expansion of business areas, increase in the number of employees, and implementation of equity incentives, the company's R&D expenses (390.299 million yuan, +96.84%) and management expenses (0.44 million yuan, +34.37%) The reason for the decline in the company's overall profitability.
The National Integrated Circuit Fund became the company's new shareholder, and prospects for MEMS business development are promising
In February 2019, after the company completed a non-public offering of shares to China Integrated Circuit Industry Investment Fund Co., Ltd. and Chairman Yang Yuanchun at a price of 22.10 yuan/share, the National Integrated Circuit Fund became the company's second largest shareholder, with a shareholding ratio of 13.75%. The actual capital raised in this offering was 1,207 million yuan to be invested in the 8-inch MEMS international foundry line construction project, which will help the company integrate MEMS business resources, improve the MEMS business system, and strengthen the company's global competitive advantage in the field of MEMS chip manufacturing.
Vigorously developing the three core businesses of MEMS, navigation and avionics, laying out the emerging potential business company is a private technology enterprise group with sensor technology as the core, closely surrounding the two major industrial chains of the Internet of Things and special electronics. On the one hand, it is vigorously developing the three core businesses of MEMS, navigation, and avionics, and on the other hand, actively laying out potential businesses such as unmanned systems, third-generation semiconductor materials and devices, and strives to become a private technology enterprise group with a high competitive threshold.
① MEMS business
The company's wholly-owned subsidiary, Silex, Sweden, is the world's leading pure MEMS foundry company, serving the world's largest manufacturers in various fields. Since 2012, it has always ranked in the top five global MEMS foundry revenue rankings, and has always been in the top two in the MEMS pure foundry field. It is the main source of revenue from the company's current MEMS business. By the end of 2019H1, the total amount of unexecuted contracts/orders held by Silex, a wholly-owned subsidiary of the company (more than 5 million yuan in a single transaction), was about 500 million yuan, which continued to have sufficient momentum for business growth.
2019H1, the company continues to promote the upgrading of the Swedish production line, further adding local production capacity. The subsidiary Celex Beijing also comprehensively promoted the construction of the “8-inch MEMS International Foundry Line Construction Project” in Beijing. After the upgrading of the Swedish production line and the construction of the Beijing production line are completed, Xilex Beijing will form complementary advantages with Sweden's Silex, which strongly guarantees that the company continues to maintain its leading position in pure MEMS foundry in the world.
We expect that the upgrading of the company's Swedish production line and the “8-inch MEMS international foundry line construction project” in Beijing will be a strong guarantee that the company's MEMS business revenue will continue to grow rapidly in the next few years.
② Navigation, avionics business
The company has the capacity to independently develop and produce inertial navigation systems, core components, and avionics systems. 2019H1. Although the company's navigation and avionics business experienced a decline in operating revenue due to delays in the finalization of some products, user pricing, and order production and delivery progress. Among them, the navigation business was also compounded by a decline in profit levels and losses from major business subsidiaries, but the company's navigation and avionics business continued to develop normally.
Currently, the company continues to serve users in special fields and industry users, actively exploring and expanding new customer needs while executing original contracts. The laser inertial guidance system, optical fiber inertial guidance system, and various avionics equipment developed by the company have been equipped in batches, and various “sea, land, air and space” navigation application projects have been actively promoted. At the same time, the investment progress of a number of navigation business projects for which the company raised capital in the early stages is nearing completion, which is expected to help the company's navigation and avionics business revenue with high gross margins resume growth.
③ Other businesses (unmanned systems and third-generation semiconductor business)
2019H1, the company continues to actively promote the development of unmanned systems business and third-generation semiconductors. In terms of unmanned systems, the company successfully won bids for a number of special projects. In terms of semiconductors, the company continues to promote the construction of related projects, including the third-generation semiconductor material manufacturing project (Phase I), based on the 8-inch GaN-on-Si (GaN-on-Si) epitaxial wafer successfully developed in 2018. Companies in the field of GaN materials have established cooperation with downstream users, and several GaN power device products launched by companies in the field of GaN devices have already entered the small-batch trial production stage. It is expected that with the current application development of unmanned systems and third-generation semiconductor materials and devices, the above business is expected to become a new revenue growth point for the company.
Investment advice
We believe that although the company experienced a double decline in operating income and net profit due to the decline in navigation and avionics revenue in 2019H1, the company maintained rapid growth in its MEMS business revenue. Along with the breakthrough in production capacity bottlenecks brought about by future Swedish production line upgrades and the implementation of the “8-inch MEMS International Foundry Line Construction Project” in Beijing, which raised capital of about 1.2 billion yuan, the company's MEMS business will continue to grow rapidly in the future; the company's current product definition, user review, and order production in the navigation and avionics business Effects such as delays in delivery are expected to be gradually eliminated in the future. At the same time, the company's batch equipment for many new navigation and avionics products and the near completion of investment progress in future navigation business projects will help the company's navigation with high gross margin, and the avionics business revenue will resume growth; the company's layout in the unmanned systems and third-generation semiconductor business is expected to provide the company with new revenue growth points.
Based on the above views, we expect the company's revenue for 2019-2021 to be 782 million yuan, 1,071 million yuan and 1,602 million yuan respectively; net profit of the mother is 98 million yuan, 141 million yuan and 201 million yuan respectively; EPS is 0.15 yuan, 0.22 yuan and 0.31 yuan respectively. The current stock prices correspond to 86 times, 59 times and 42 times PE respectively.
Risk warning: The company's MEMS and navigation projects fell short of expectations; unmanned systems and third-generation semiconductor business promotion fell short of expectations.