Event: on the evening of October 29, the company released its quarterly report for 2019. The company reported operating income of 349 million yuan in the first three quarters, down 10.59% from the same period last year, and net profit loss of 14.8455 million yuan, down 131.8% from the same period last year.
The company made a net profit loss of 22 million yuan in the first three quarters, down 161.81% from the same period last year.
The company's Q3 revenue improved in a single quarter, achieving the first positive return of net profit in a single quarter this year. The company declined in the first three quarters compared with the same period last year, mainly due to losses in the first two quarters. The company's 2019Q3 realized operating income of 143 million yuan in a single quarter, an increase of 7.44% over the same period last year (Q2 down 20.13% from the same period last year), and 21.19% month-on-month increase in Q2 2019Q3 realized a net profit of 9.8077 million yuan in a single quarter (a loss of 16.0585 million in the previous quarter). 2019Q3 deducts a net profit of 7.9674 million yuan (a loss of 18.8493 million in the last quarter). Although it is still less than the same period last year, Q3 is the first time that the company has become a regular employee in a single quarter after two consecutive quarters of losses.
The company's Q3 single-quarter gross profit margin recovered obviously, the new heat dissipation products landed, and the upward trend of profitability was determined. The company's sales margin in the first three quarters of 2019 was 17.81%, an increase of 4.37 pct over the same period last year. Among them, Q3 single-quarter sales gross profit margin and net profit margin were 24.11% and 7.53% respectively, an increase of 9.48 pct and 22.4 pct compared with Q2 in the single quarter, and an increase of 1.42 pct and a decrease of 3.36 pct respectively over the same period last year.
Taiwan manufacturers have a first-mover advantage in heat pipe and VC solutions, and the flagship machine is obviously pulled in the second half of the year. Taiwanese companies, including Chaozhong, Shuanghong, Taishuo, Qihong, Lizhi and Jianshi, have strong technical strength in the heat pipe field, and VC soaking plates occupy 70 per cent of the global market share. According to the forecast of Taiwan's cooling leader Shuanghong in Q3, revenue of Shuanghong is expected to grow by 30% in 2019 and 25% next year due to the boom of Chinese (Huawei, OV, etc.) flagship models in 2019.
Carbon technology is expected to catch up with and surpass its Taiwanese counterparts in the 5G era and achieve a comprehensive domestic replacement of medium-and high-level heat dissipation solutions. Carbon technology has won the trust of Samsung, Huawei, VIVO, OPPO and so on in the era of graphite film. In the brand-new field of mobile phone terminals, the new technological requirements give mainland manufacturers the opportunity to catch up. The company currently provides complete terminal heat dissipation solutions including high thermal conductivity graphite, ultra-thin heat pipe and VC. The company's heat pipe products factory (ultra-thin heat pipe and VC board) completed construction and put into production in the second quarter of 2019. The company's R & D expenditure in the first three quarters increased by 76.22% compared with the same period last year, accounting for 9.25% of revenue in the first three quarters. Among them, Q3 R & D expenditure reached the highest level in a single quarter, an increase of 121.10% over the same period last year and 25.17% month-on-month, accounting for 9.41% of the revenue in a single quarter, which is also the highest level in history. According to the official website of carbon technology, the company's current heat pipe products can achieve thickness below 0.3mm, thermal conductivity above 20000w/mk, solving the current problem that heat pipes with diameter above 5mm can not flatten less than 0.35mm thickness. The technical level of carbon element is leading in the industry, and its core competence is gradually catching up with its counterparts in the factory.
Graphene, heat pipe and VC will infiltrate into 5G smartphones, and the stand-alone heat dissipation ASP will be significantly improved: traditional phone heat dissipation materials are mainly TIM materials such as graphite sheet and heat conduction gel (heat conduction interface material). At present, heat pipe and VC (soaking board) begin to infiltrate into smart phone terminals from computers, servers and other fields. The 5G intelligent terminal is expected to popularize the heat dissipation scheme of graphite film + heat pipe or graphite film + VC. Huawei's Mate 20 X is the first to use graphene + VC heat dissipation, and Samsung's new flagship Note 10 also uses VC cooling for the first time. With the increase in the penetration of heat pipes and VC in smartphones, the stand-alone heat dissipation ASP in the 5G era is expected to reach more than $3 to $4, a triple increase in value. In the next few years, we expect 5G to usher in a new replacement wave: according to IDC, the smartphone industry is expected to return to growth in the second half of 2019, with global smartphone shipments of 1.542 billion units and 5G phone penetration of 25 per cent by 2023.
Investment suggestion: we estimate that the company's income from 2019 to 2021 will be 650 million yuan (+ 17.86%), 1.118 billion yuan (+ 71.65%) and 1.522 billion yuan (+ 33.27%) respectively, and the net profit attributed to the shareholders of the listed company is 61 million yuan (+ 13.44%), 151 million yuan (+ 147.45%) and 240 million yuan (+ 58.97%), respectively, and the corresponding EPS is 0.29,0.72,1.14 yuan respectively. The corresponding PE was 59 times, 24 times and 15 times, respectively. Combined with the company's future development expectations driven by 5G, maintain the "buy-A" investment rating and target price of 25.10 yuan, corresponding to a dynamic valuation of 35 times in 2019.
Risk hint: the international trade environment has changed greatly. At present, 5G mobile phones have not yet reached the stage of large-scale application, and the upstream industrial chain of the company is at risk of being replaced by technology.