Items:
Chaohua Science and Technology dynamic tracking
Guoxin Electronics point of view: Chaohua Technology Co., Ltd. has the production capacity of the whole industry chain from PCB raw materials to PCB products, adheres to the "vertical integration" industry chain development strategy, and has the ability to serve customers in one stop. At present, the company has invested in the construction of the second phase of 8000 tons of high-precision electronic copper foil project, of which nearly 4000 tons are lithium copper foil production capacity, laying a good foundation for the layout of new energy vehicles. At the same time, the company successfully developed 5G high frequency special board and super large size special board in 2018, and is expected to further expand the 5G high frequency and high speed market in the future. We estimate that the company's net profit from 2019 to 2021 will be 0.47 billion yuan, respectively, corresponding to 65.6 times of PE 100.0.
The company strives to achieve industrial upgrading, position its own new materials company, actively layout the field of new energy vehicles, and give "overweight" rating.
Comments:
Vertically integrated PCB company
Chaohua Technology was founded in 1991 as PCB and was successfully listed on the Shenzhen Stock Exchange in 2009. From 2009 to now, Chaohua Technology adheres to the development strategy of "vertical integration" industrial chain, and continues to expand the raw material industry upward. The company has entered the layout stage of the whole industrial chain, and the company has carried out a series of PCB epitaxial mergers and acquisitions, successively acquiring Guangzhou Sanxiang, Meizhou Taihua, Huizhou Hezheng and other companies. The company currently has copper foil production capacity of 12,000 tons / year, copper clad laminate production capacity of 1200 million sheets / year, PCB production capacity of 7.4 million square meters / year, the future capacity target will reach 40,000 tons of copper foil / year, copper clad laminate 3200 million sheets / year.
Chaohua Technology successfully intervened in the smart city and chip design and software integration industry in 2015, taking a stake in Xidi Semiconductor, the world's leading G.hn chip design company; Chaohua Technology attaches importance to the integration and complementarity of industrial and financial capital, the Meizhou Merchant Bank initiated by the company was officially opened in 2017, and Shenzhen Huarui Juxin supply chain Management Co., Ltd. was established in 2018.
The main shareholders of the company, Mr. Liang Jianfeng, Mr. Liang Junfeng and their concerted actors, together hold 24.95% of the total share capital of the company and are the actual controllers of the company. In April 2019, Liang Jianfeng, the former chairman and legal representative of the company, stepped down, and Liang Hong, the son of Liang Jianfeng, became the chairman and legal representative.
Chaohua technology products are mainly high-precision electronic copper foil, all kinds of copper clad laminate and other electronic substrates and printed circuit boards (PCB). At present, the company has the production and service capacity of the whole industry chain product line, including copper foil substrate, copper foil, semi-curing sheet, single / double-sided copper clad laminate, single-sided printed circuit board, double-sided multi-layer printed circuit board, special wood pulp paper for copper clad board, drilling and pressing processing. it is a rare enterprise in the industry with the product layout of the whole industry chain.
Second, according to the analysis of the company's revenue structure, copper foil and copper clad laminate have grown steadily in recent years, which is the main source of profit for the company. The company's revenue and net profit have fluctuated in recent years, and non-net profit has increased slightly. From 2017 to 2018, the company's revenue was about 13.4 billion yuan; after successfully turning losses into profits in 2017, the net profit was about 0.35 billion million; the net profit after deducting non-return increased from-88 million yuan in 2016 to 56 million yuan in 2018, and reached 52 million yuan in the first three quarters of 2019. The net profit is 35 million yuan in 2018 and 47 million yuan in 2019. After the release of the company's new copper foil production capacity in 2020, it is expected to usher in a better promotion.
In recent years, copper foil and copper clad laminate account for relatively high revenue, contributing to the vast majority of profits. Copper foil, copper clad laminate and printed circuit board are the main sources of revenue of the company. According to the 2019 mid-term report, the business of copper foil and copper clad laminate accounted for 70%, of which copper foil revenue was 280 million, accounting for 40%; copper clad laminate revenue was 209 million, accounting for 30%; and printed circuit board revenue was 194 million, accounting for 28%. Copper foil, copper clad laminate and gross profit margin are 29.75%, 18.20% and 8.89% respectively, and copper foil contributes higher gross profit.
The sales share of the top five customers has increased in the past three years. The company's customer base covers most of the domestic PCB, CCL listed companies and the top 100 enterprises in the industry. The company's high-margin lithium copper foil products have been tested and verified by some key customers to achieve small batch supply; 5G high-frequency special boards are also actively expanding domestic high-quality customer coverage; in addition, the company's PCB division has achieved automotive plate production in the reporting period and passed customer certification. Through the development of high-end products, the company will further expand the coverage of the company's high-quality customer base and enhance the overall competitiveness of the company.
Third, the analysis of the company's profitability shows that the core profit index is weaker than the industry, mainly for the general gross profit margin performance, and the overall expense rate shows that the company's core profit index ROE is lower than the PCB industry median in recent 3 years, and the net profit rate is lower through DuPont analysis. From 2016 to 2018, the company's ROE showed a low level of-5.14%, 3.15% and 2.26%, respectively, which was lower than the industry median level. Through DuPont analysis and comparison, the company's ROE performance is generally attributed to the company's low net interest rate in the past three years. Taking the 2018 results as an example, the industry's median net interest rate is 11.59%, the company's net sales rate is 2.48%, which is only 21% of the industry's median; the company's asset turnover is 0.51, which is 66% of the industry's median; and the equity multiplier is 1.79 slightly higher than the industry's median.
From another point of view, the company's 2018~2019Q3 deduction non-ROE year is better than ROE performance, showing that non-recurrent losses have a certain impact on the company's profits. After in-depth analysis, it is found that the company's regular business performance is good, but there are more non-recurrent losses in the reporting period, including 3323 yuan in 2018 and 35.79 million yuan in the 2019Q3 reporting period, mainly due to the company's 2014 annual report, which was identified as a false record by the Guangdong Securities Regulatory Bureau in December 2017. some investors appealed and demanded compensation from the company. The company reached a settlement agreement with these investors and compensated for the related losses, resulting in this non-recurring profit and loss. We judge that there were problems in the company's financial internal control management, but with the replacement of the relevant financial personnel in July 2018 and the appointment of the new chairman of the company in March 2019, the company's management and internal control are being further regulated.
In addition to recurring profit and loss factors, the company's overall expense rate increased, resulting in a lower net profit rate from 2016 to 2019Q3. Gross profit margin rebounded from 9.59% at the initial stage to 22.38% of 2019Q3, which was generally lower than the industry median by about 50.7 percentage points, but faster than the industry median performance. It shows that the company optimizes its revenue structure and shows the effect of sales growth of copper foil products with high gross margin.
Investment suggestion
The company has the production capacity of the whole industry chain from PCB raw materials to PCB finished products, and adheres to the "vertical integration" industry chain development strategy, with one-stop customer service ability to firmly grasp the high-quality customer group. At present, the company invests 8000 tons of high-precision electronic copper foil phase II project, of which nearly 4000 tons is lithium copper foil production capacity, laying a good foundation for the layout of new energy vehicles, and the company successfully developed 5G high-frequency special board and super-large size special board in 2018, which is expected to further expand the 5G high-frequency high-speed market in the future. We estimate that the company's net profit from 2019 to 2021 will be 0.47 billion yuan, respectively, corresponding to PE 100.0According to 65.6Compact 44.7, the company strives to upgrade its industry, position itself as a new material company, actively layout the field of new energy vehicles, and give it an "overweight" rating.
Risk hint
1. Although the non-profit deduction of the company shows an improvement, the robustness of the balance sheet still needs to be concerned. If the macroeconomic and downstream demand is lower than expected, there may be operational stability risks.
2. The company was supervised and punished by the Guangdong Securities Regulatory Commission in 2014 for falsely increasing profits, the audit result of the annual audit report in 2017 was with reservations, and in October 2018, the company issued the announcement on the Correction and retroactive Adjustment of previous Accounting errors. Belxin, a shareholding company suspected of contract fraud, is being investigated by the public security organs, and has made retroactive adjustments to the financial statements from 2015 to the first half of 2018. It shows that the company has the risk of lax management and financial internal control.