Short-term investment will affect profits. In the long run, the ASP of heat dissipation components of 5G mobile phones will be improved and the "buy" rating will be maintained.
Sales of 2019Q1-3 mobile phones bottomed out and the company's performance was slightly lower than market expectations. The company released its three-quarter report in 2019, with operating income of 349 million yuan (YoY-10.59%) / 143 million yuan (YoY7.44%) in the first three quarters and net profit of-14.85 million yuan (46.68 million yuan in the same period in 2018) / 98.1 billion yuan (YoY-35.84%) respectively, slightly lower than market expectations. The main reasons are: (1) smartphone shipments continued to decline in 2019, graphite chip price competition is fierce; (2) the company's capacity restructuring and relocation in the first half of the year, affecting income and gross profit margin; (3) mobile phone heat dissipation, carbon optoelectronic components business are in the R & D investment period, costs have increased.
Q3 has warmed up, and the benefit of graphite sheet 5G is expected to return to growth. The company's Q1/Q2/Q3 single-quarter income was RMB 0.88 million, respectively, and YoY was-19.63%, 20.13%, and 7.44%, respectively. The industry boom declined in the first half of the year, benefited from the listing of new mobile phone products and the release of the company's production capacity in the third quarter, and the operating income recovered significantly. Looking forward to 2020, the global 5G mobile phone is expected to sell 200 million units, the demand for heat dissipation is increased, and the application of thick graphite and multi-layer graphite is accelerated, which is expected to lead to the continuous improvement of the company's graphite sheet business. The company's Q1/Q2/Q3 single-quarter gross profit margin was 11.85%, 14.63%, 24.11%, respectively, and has returned to 2018 levels in the third quarter.
The heat pipe / soaking plate in 5G mobile phone is expected to infiltrate quickly. The complexity of 5G mobile phones increases and the amount of superimposed computation increases. The average power consumption is about 6W compared with 4G + 50%, and the peak power consumption can even reach 9: 10W. The single unit value of 5G mobile phone heat dissipation elements in limited space is expected to double. We estimate that the global value is 20.9 billion yuan and CAGR16.6% in 2025. The heat dissipation of 4G mobile phone is mainly graphite sheet, and the heat pipe / soaking plate superimposed on 5G mobile phone with fast average temperature is expected to become the mainstream solution. we predict that by 2025, the proportion of heat pipe / soaking plate will be 60% and 20% respectively. We judge that Chinese mainland manufacturers benefit from industrial chain aggregation and customized services, and the dominant share is expected to continue to increase.
The company has the leading layout of products and production capacity, and is expected to release flexibility in 2020. The company's heat pipe / soaking plate products and production capacity are in the lead of mainland manufacturers, and we estimate that the current production capacity is 2kk/ month and 1kk/ month respectively. The company's heat pipe / soaking plate has been certified by domestic benchmarking manufacturers, and the heat pipe is officially supplied and the soaking plate is climbing. The company focuses on improving the automation level of the production line and tamping the stable delivery capacity. Considering the construction of the network on a large scale in 2020 and the expected sales of HOVM 5G mobile phones, the company's heat pipe / soaking plate is expected to become a new growth point.
Risk factors: fierce price competition in graphite sheet industry and overcapacity of heat pipe / soaking plate.
Investment suggestion: the company's graphite sheet business has picked up somewhat, and the increase in heat dissipation demand for 5G mobile phones in the future is expected to bring new products such as heat pipes / soaking plates. Taking into account the continued investment of new products, we downgrade the net profit forecast for 2019-2021 to RMB 0.22 million (the original forecast is RMB 0.33-140,000,000, with a change range of-9%). The EPS forecast for the latest equity is RMB 0.14x0.58, and the current price corresponds to 121/29/16xPE. It is expected that the volume of 5G in 2020 will lead to performance and maintain the "buy" rating.