3Q19 performance is lower than we expected.
Fenda Technology announced three quarterly results: January-September revenue of 2.5 billion yuan, an increase of 3.5% over the same period last year; net profit of 135 million yuan, down 48.5% from the same period last year, lower than we expected, mainly due to the downturn in metal parts business.
Corresponding to 3Q19 single quarter: revenue 1.01 billion yuan, up 2.8% year-on-year, net profit 59.72 million yuan, down 48.7% from the same period last year.
The poor performance of 3Q19 is mainly due to the continued downturn in the metal parts business: due to the sluggish metal parts market and relocation, 3Q19 Opunda continued to lose more than 20 million yuan, and accumulated losses of more than 70 million yuan from January to September. Fu Chengda also failed to meet the set target.
Trend of development
The performance of smart speakers and smart wear is relatively good. 1) Smart Speaker: Fanta is one of the main contract manufacturers of smart speaker brands, with customers including BABA, JD.com and so on. We expect the smart speaker business to grow by more than 30% this year. Next year, we also have the opportunity to further enter other mainstream brands such as Huawei. However, due to the sluggish export of traditional speaker business, we expect the overall speaker business to grow by only about 18% year-on-year this year. 2) Smart wear:
1-3Q19 Endeavour has a good performance in Huawei bracelets, Philips watches, etc. We expect to drive the growth of smart hardware business around double this year, and expect to make further breakthroughs in Huawei and other bracelets / watches next year.
The metal parts business is expected to pick up next year. After more than a year of economic downturn and capacity loss, we expect the metal parts market to pick up next year, and Android 5G mobile phones will be available early next year, driving the demand for metal parts to pick up. The performance of the company's Opunda and Fu Chengda is also expected to pick up.
Profit forecast and valuation
As the metal parts market continues to be in the doldrums, we have lowered the 2019 EPS 20e CPG 45% by 8% to 0.11 Unix 0.24 yuan. The current share price corresponds to 2019 Universe, 20e 39.7 and 17.9 times Pax E. To maintain the neutral rating, as the valuation is switched to 2020, maintaining the target price of 5.00 yuan, corresponding to 2019/20e45.6/20.5 times Ppace E, there is 15% room for increase compared with the current.
Risk
Shipments of smart speakers fall short of expectations; metal parts industry is in the doldrums.