Main points of investment:
Event: Sega Technology released three quarterly reports, with operating income of 1.431 billion yuan in the first three quarters of 2019, an increase of 60.13% over the same period last year, and net profit of 98.19 million yuan, an increase of 282.56% over the same period last year. The previous three-quarter report predicted that the net profit of returning home in the first three quarters was 84.7 million yuan to 110.37 million yuan, in line with the scope of the previous forecast.
The net profit of homing in the third quarter maintained the same high growth rate, and the month-on-month adjustment did not change the long-term trend. The company achieved operating income of 522 million yuan in the third quarter of 2019, an increase of 49.59% over the same period last year. The net profit of returning to the mother was 37.76 million yuan, an increase of 207.89% over the same period last year, and a pullback compared with the second quarter. We judge that the situation is to some extent subject to the seasonal factors of the industry. Because the company and Tongyu Communication both layout base station filter and base station antenna business, the business structure is similar, so referring to the situation of Tongyu Communication in the past three years, the homing net profit in the third quarter is lower than that in the second quarter to a certain extent. Therefore, the month-on-month performance adjustment does not represent a change in the long-term trend.
It is expected that in 2020, 5G-scale construction, the high growth of net profit is expected to maintain. Ericsson released its three-quarter report on October 17th. China is expected to start large-scale construction of 5G in 2020, while Ericsson believes that the deployment of 5G will be faster than expected. In the report "welcoming a New 5G era and stepping into a New Business cycle", we assumed that China would build 600,000 5G base stations in 2020, an increase of 300% over 2019.
We believe that with the advent of large-scale construction of 5G base stations, the company's return net profit is expected to maintain year-on-year and month-on-month growth.
The new product ceramic radio frequency devices began to ship. On January 29 this year, the company acquired a 51% stake in Jetband Electronics, and the newspaper disclosed that ceramic radio frequency devices had made about 3.09 million yuan in income. at the same time, the company announced on October 21 this year that it intends to purchase land use rights from Suzhou Hushuguan Economic Development Zone for the 5G ceramic waveguide filter project. We believe that the new product ceramic filter in 2020 has the opportunity to contribute revenue and profit on a large scale.
New customers and new markets deserve attention. The company reported that it had successfully entered Ericsson's supplier system and began to supply small quantities. In addition, the company's overseas platform Dengyo USA has completed its first order delivery, and we judge that new customers and new markets in 2020 are expected to contribute to revenue and profit growth after one year of cultivation.
Investment suggestion: we expect the net profit from 2019 to 2021 to be 162 million yuan, 277 million yuan and 460 million yuan, an increase of 23.3% and 65.9% over the same period last year. The corresponding EPS in 2019-2021 is 0.96 yuan 1.65 and 2.73 yuan respectively, and the corresponding PE in 2019-2021 is 37.68,22.01,13.27 times according to the closing price on October 24. According to the comparable company valuation method, we give the company 40-50 times PE in 2019, corresponding to a reasonable value range of 38.47 yuan-48.08 yuan, maintaining a "better than the market" rating.
Risk tips: 5G progress is not as expected, market competition risk, trade friction risk.
