Events:
The company announced that the company's revenue in the first three quarters of 2019 was 2.294 billion yuan, an increase of 0.91% over the same period last year, and the net profit was 104 million yuan, a decrease of 62.57%. The net profit after deducting non-return was 137 million yuan, a decrease of 44.57% over the same period last year. In 2019, Q3 achieved a revenue of 813 million yuan in the single quarter, an increase of 10.31% over the same period last year, a net profit of 56.53 million yuan, a decrease of 18.81%, and a net profit of 46.02 million yuan after deducting non-return, a decrease of 15.27% over the same period last year.
Main points of investment:
Domestic superfiber leader, the acquisition of Weifutong to enter the field of mobile payment. Huafeng superfiber was founded in 2002. since its establishment, it has focused on the research and development and production of superfiber materials. it is one of the few enterprises with the most complete production process of superfiber materials in China, and it is also the enterprise with the largest production and marketing scale of superfiber materials in China. the company has an annual production capacity of 100 million square meters. In 2016, the company bought 100% stake in Weifutong at a price of 2.05 billion yuan in the form of issuing shares and paying cash, and entered the field of mobile payment. Wei Futong original controller Xian Dan has become the second largest shareholder of Huafeng superfiber, and you Xiaoping and his concerted actors still have actual control of the company.
Weifutong is the pioneer of domestic mobile payment technology. Weifu Tong, founded in 2006, is the world's leading provider of mobile payment solutions. By the end of 2018, Weifutong had more than 200 service banks and more than 30 million service merchants, handled more than 30 million mobile payment transactions every day, and accepted a total of more than 1 trillion yuan in mobile payment transactions. Since Weifu Tong does not have a third-party payment license, it mainly provides technical services to banks, third-party payment companies and merchants. Fenrun, the technical service of mobile payment, is the main source of income of Weifutong, accounting for 86% of the revenue in 2018. The banking model is the main business model of technical services, accounting for 71.8% of Weifutong's total revenue in 2018. According to the different sources of merchant development, the banking model can be further divided into Weifutong self-extension merchant model and bank expansion merchant model. The "disconnection" policy in 2018 had a great impact on the flow of self-extension merchants, resulting in a decline in the performance of 2018 and 2019H1.
The negative influence of "breaking the direct connection" weakens. The "disconnection" has a negative impact on the self-extension merchants of the Weifutong bank model, but it does not affect the income of the company bank expansion merchants and bank acceptance institutions. Affected by the "disconnection", the performance of Weifutong has declined, with revenue of 387 million yuan and 323 million yuan and net profit of 184 million yuan and 149 million yuan from 2017 to 2018. Weifu Tong actively responds to the negative impact of the policy: on the one hand, it seeks deep cooperation with higher-level card positions in the industrial chain to carry out business with NetPay and UnionPay; on the other hand, it ploughs banking services and strengthens its refined and differentiated operation of banks. by the end of 2018, the company had served more than 200 banks worldwide. The adverse effects of the "disconnected" policy have been concentrated in 2018, and the flow of transactions to 2019Q1 is basically stable. According to the company announcement, in June 2019, Weifutong's self-extension merchant model has gradually returned to the growth trend, with revenue of 2.5611 million yuan in that month, an increase of 104.01% over January 2019, and the negative impact of "disconnection" has weakened. The quarterly results in the third quarter can also prove it.
Profit forecast and investment rating: give "overweight" rating. We believe that the company is the leader of superfiber materials, the marginal relaxation of trade frictions between China and the United States releases downstream demand, the negative impact of the "disconnected" policy on Weifutong is weakened, and the sustained high growth of mobile payment transaction scale in China supports the performance of Weifutong. We estimate that the company's EPS in 2019-2021 will be 0.17 EPS 0.270.32 yuan, respectively, and the corresponding share price will be PE times 58-37-31, giving it an "overweight" rating.
Risk hints: 1) the risk of intensified trade frictions between China and the United States; 2) the risk that Weifutong's performance is lower than expected; and 3) market systemic risk.
