The current situation of the company
Considering that the overall supply of optical fiber and cable industry exceeds demand, and the prosperity is at a low point, we reduce the company's target price by 18% to 7.80 yuan to maintain a neutral rating, but we suggest that we should pay attention to the development of the industry after 3Q19. 5G is expected to become a driving factor in the industry.
Comment
The price of domestic optical fiber and cable halved in 2019, but Tongding Interconnection won a large share in mobile bidding this year, but the short-term gross profit margin fell seriously, resulting in pressure on the performance during the year.
Prices are likely to maintain or rise on a small scale in 2020. However, the demand of the industry is not clear enough. According to the neutral calculation simulation, we think that the 2020 industry may return to growth because of 5G construction, but the growth rate is weaker than that in the boom period, only 12%. On the other hand, the domestic smooth rod production capacity is gradually expanding, and the competition is intensified.
We believe that the new price of China Mobile Limited's optical fiber and cable collection will be implemented in the middle of 2Q19, so 3Q19 will be the worst time in the industry. After 3Q, it is recommended to pay attention to the development of the industry, and supply and demand is expected to improve with the growth of demand. With the increase in the application of optical fiber in 5G in 2020, the company's capacity utilization has room to improve, driving revenue and gross profit margin up.
Subsidiary Ruiyi Information and Baizhuo Network are in a period of rising performance, and we believe that with the growth of domestic network traffic, the business of the two companies is expected to achieve rapid growth. At the same time, the company acquired a minority stake in UTStarcom Holdings Corp in 2019, and we think it is expected to get a certain share in the bidding of 5G carrier network.
Valuation proposal
We downgrade the company's 19amp 20e profit forecast 54% Universe 48% to 220 Plus 327 million yuan, and the current share price corresponds to 43.4 Universe 29.1 times Pamp E in 19max 20 years. Cut the company's target price by 18% to 7.80 yuan, corresponding to 1920 44.8 Universe 30.1 times Pmax E, and the current stock price upside by 3%.
Risk.
The decline rate of FTTH is faster than expected, and the pulling effect of 5G construction on optical fiber is lower than expected.
The goodwill of the company is about 950 million yuan, which needs long-term attention.