Quanxin Co., Ltd. is engaged in military high-performance optoelectronic transmission products, is one of the earliest domestic enterprises engaged in the development and production of high-performance transmission cables, and is the leading enterprise of domestic high-performance transmission cables (components). The products cover the five major military fields of aviation, aerospace, shipbuilding, military electronics and weapons, supporting major projects such as fourth-generation fighter planes, aircraft carriers, manned space projects, Beidou navigation, and low-orbit satellite constellations.

The aerospace mission ushered in the "super mode", the company participated in a number of major projects, and had a high market share in the aerospace field, especially in the field of satellite transmission, which will directly benefit from the construction of low-orbit satellite constellations. In 2020, China's space launch will continue to be "super mode" and is expected to reach "40 +" for the first time. It will complete the completion of major projects such as Beidou navigation and lunar exploration, and complete the launch of major missions such as Mars exploration. We will complete the first flight of the long March 5B, long March 7A, long March 8 carrier rockets, and complete the launch of commercial satellites such as the Asia-Pacific 6D satellite and the Group Satellite Internet Fusion Test Star. The company participates in manned spaceflight Shenzhou spacecraft project (Shenzhou series), cargo spacecraft project (Tianzhou series), space station, Leo satellite constellation and other model projects, achieving comprehensive coverage. According to the Science and Technology Innovation Herald, among the domestic products of high-performance transmission lines (components) for satellites, the company has the highest market share, accounting for about 60% of the market share of domestic products. The market share of high-performance transmission lines (components) for carrier rockets is 20%. It has obvious advantages in the field of aerospace, especially in the field of satellite transmission, and will directly benefit from the prosperity of the aerospace industry, including the construction of low-orbit satellite constellations.

The company accounts for a high proportion of aviation business, significantly benefiting from the volume of aviation main combat equipment such as fourth-generation aircraft, entering the inflection point of performance growth, and is expected to show a higher growth rate in recent years. Quanxin's high-performance products are widely used in China's military aircraft, the company not only in China's fourth-generation aircraft, helicopters, drones, special aircraft and other models. The company and the domestic military aircraft overall design unit aviation industry 601, 611 is a strategic cooperation relationship, participated in and equipped with a large number of fighter models. Considering that at present, the three swordsmen of the J-20, J-16 and J-10C fighters in China are at the peak of equipment, and the fourth-generation stealth fighter J-20 is in the volume stage, the company has undertaken a higher value package in several major models of cable networks. with the booming demand for aviation equipment, the company's performance is expected to increase to a higher level.

In the civilian field, lay out the rail transit business and open up a larger market. The company aims at the high-end rail transit cable market, has passed IRIS and 3C certification, CRCC certification is being applied for, this field of domestic market space is huge, will be an important revenue growth point for the company in the future. According to the company's website, the company invested 250 million yuan to build a new rail transit high-end cable production line construction project, which started in 2019 and is expected to be completed in 2021. After the completion of the project, it can reach the production scale of annual data bus cable 10000km for rail transit vehicles, Ethernet cable 4000km for rail transit, European standard EN50264 series cable 55000km, European standard EN50306 series cable 33900km, and provide new performance highlights for the company.

China has entered the field of optical fiber bus early, leading in technology, and constantly improving the supporting level. FC bus technology is the optical transmission technology of the next generation avionics network transmission standard, is the future aviation trend, and is expected to become the standard configuration of the new generation of main combat aircraft. According to the company's official website, the company's Shanghai Saizhi optical fiber bus technology originated from Silicon Valley in the United States. As a domestic early entry into the optical fiber bus field and a leading technology, it has established an industry standard for the optical fiber bus field, and the products have been widely used in the five major military industrial fields. At present, the company is in a leading position in the field of domestic optical fiber bus, with core technology and independent intellectual property rights, and has successfully developed three types of products: equipment products, simulation products and test products. The product range is rich, which can provide system solutions, constantly improve the supporting level of the company, and gradually form the supporting capacity of the whole chain in the field of transmission.

Investment advice: the company previously issued a performance forecast and achieved a profit of 1.44-149 million yuan in 2019, of which the impact of non-recurrent profit and loss on the return net profit was about 62 million yuan, of which the government subsidy was about 9.5 million yuan. the impact of deferred income tax caused by non-recurrent income is about 51 million yuan. In 2019, the return net profit of the company after deducting the effect of one-time deferred income tax is expected to be 0.93-98 million yuan. In 2020, the company's military high-performance transmission products are expected to follow the downstream demand and the company's performance is expected to enter the release inflection point. In the military aviation field, it will participate in the matching of several fighter models. With the aviation equipment peak represented by the J-20 fourth-generation aircraft in the last year of the 13th five-year Plan, the company has benefited significantly. In the field of aerospace, the company has a good market share and participates in many major aerospace projects. The company will directly benefit from the "super mode" of aerospace missions in 2020, and the company is expected to benefit even more if it takes into account the construction of low-orbit satellite constellations. In addition, Changkang Environmental Protection, which was previously acquired, has fully mentioned the impairment of goodwill in the 2018 annual report, and has previously announced its intention to divest. We estimate that the company's net profit from 2019 to 2021 will be 1.44,1.40 and 179 million yuan respectively. According to the deduction of RMB 0.93-98 million in 2019, the growth rate in 2020 and 2021 will be 41% and 28% respectively, with a "buy-A" rating of 22 and 17 times the previous share price.

Risk tips: the divestiture of Changkang environmental protection is not up to expectations, the delivery of weapons and equipment to downstream customers is not up to expectations, and the rail transit business is not up to expectations.