Cambridge Technology is an excellent supplier to the ICT industry and has extensive experience in large-scale manufacturing. Cambridge Technology has excellent R&D capabilities and mature large-scale manufacturing experience. Previously, it mainly provided ODM/JDM/OEM equipment to the global ICT industry. Through the acquisition of Japan's Macom and Oclaro in the past 2 years, the company entered the field of optical modules. Form the business layout of telecom access terminals, wireless network equipment, industrial IoT software and hardware, optical modules and optical components.
Acquire assets related to Oclaro, a leading global optical module company, to improve the layout of the optical module field.
In April 2019, the company merged and acquired some of the assets of Oclaro's Japanese subsidiary and officially entered the field of optical modules. Oclaro has world-leading technical strength in high-speed, medium and long range high-end optical modules, and has mature products in fields such as 5G front-transmission and data center 400G. According to the third quarter report, the company had completed most of the mergers and acquisitions integration work by the third quarter.
5G resonates with data center demand, and the optical module industry is expected to experience a sharp rise in volume and price. With the optical network upgrade brought about by 5G and the upcoming use of 400G optical modules in data centers, the optical module industry is experiencing a new round of upgrades. We expect that starting in 2020, 5G and data center market opportunities will superimpose, bringing a new round of optical module product innovation trends, and optical module companies will usher in valuable development opportunities.
Profit forecasting and investment advice: We believe that “leading manufacturing capability” + “seizing market acumen” + “former world-leading optical module technology level” is the company's main competitive advantage. The company's first three quarters were affected by integration, and its performance declined. With the restoration of supply of key materials and the completion of production line relocation, the company's optical module business is expected to gradually expand. We expect the company's net profit to be 0.26/132/220 million yuan in 19-21, and the PE corresponding to the current stock price is 164/33/20 times. Considering the special effects of asset consolidation this year, the reasonable value is calculated using 2020 profit. Combined with the average PE (2020E) of the optical module industry (2020E) of 34 times, the company was given 34 times PE (2020E), corresponding to a reasonable value of 26.83 yuan/share, giving the company an “increase in holdings” rating.
Risk warning: The order scale brought about by the worsening competitive pattern in the optical module industry fell short of expectations; procurement progress of key materials fell short of expectations; production capacity climbed less than expected; and difficulties in acquisition integration exceeded expectations.