CNC machine tool equipment leader, downstream demand inflection point appears: the company is the world's leading supplier of port handling equipment, through the merger and acquisition of Runxing technology to achieve a strong combination, cut into the field of CNC CNC machine tool manufacturing.
The prosperity of the 3C sector in the stranded downstream is declining, and the company's net profit in the first three quarters of 2019 was 168 million yuan, down 45.45 percent from the same period last year. In the second half of 2019, driven by 5G communications, smart wear and other emerging fields, the demand for CNC CNC machine tools began to pick up gradually, and the inflection point of the company's performance was highlighted. According to the company's performance forecast, the net profit of 2019 will reach 308 million yuan to 385 million yuan, an increase of 0 to 25% over the same period last year, changing the declining trend of the company's profits in the first three quarters. In addition, the company's Chongqing general machine tool base will be put into production in 2020, with significant advantages in collaborative layout, which is expected to provide a new driving force for the company's performance growth.
The 5G era begins in the first year, and the scale of investment is expected to exceed 1.2 trillion. With the global commercial use of 5G in 2020, China has entered the stage of large-scale deployment. According to the White Paper on 5G Economic and Social impact of China Information and Communication Institute, 5G will drive direct economic output of up to one trillion yuan from 2020. Considering the impact of co-construction and sharing, if the same coverage of 4G network is achieved, the number of domestic 5G macro base stations is estimated to be 40 million to 5 million. Therefore, the main equipment benefits most during the construction period.
5G era equipment first, the company's CNC machine tools are expected to fully benefit. The 5G base station is facing the problem of high power consumption, the heat dissipation is more difficult, and the technical scheme of the heat dissipation module continues to upgrade. 1066HC and other precision vertical machining center products developed by the company for the processing of 5G base station heat sink have successfully covered the first-and second-class suppliers of major domestic communication equipment enterprises. In addition, the demand for replacement of 5G mobile phones is highly deterministic, and it is expected that the 5G era will be dominated by "non-metallic materials + metal frames". Compared with 4G mobile phones, metal frames and structures in 5G mobile phones require higher processing precision and longer processing time, which is expected to promote a new round of CNC equipment update cycle. 5G mobile phone replacement trend to promote precision processing to welcome the new blue ocean, the company, as the leading enterprise of CNC equipment, is expected to fully benefit in the future.
Earnings forecast, valuation and rating: we predict that the company's operating income from 2019 to 2021 is expected to reach 128.54 yuan, 164.62 yuan and 20.534 billion yuan respectively, with a growth rate of 29.21%, 28.07% and 24.74%, respectively. The net profit of the company from 2019 to 2021 is 3.66,5.75 and 829 million yuan respectively, and the corresponding EPS is 0.36,0.57,0.82 yuan. We give East China heavy Machinery a target price of 10 yuan (corresponding to about 18 times of 26 PE in 1920 / 20 respectively), giving a "buy" rating for the first time.
Risk hints: downstream customers' investment in machine tools is lower than expected risk; capacity progress is lower than expected risk; performance commitments do not meet expectations, which leads to goodwill impairment risk.