Three major business subsidiaries layout 5G core devices localization. The company's 5G layout takes subsidiary Huayang Communication, Nanjing Bio, Chengdu Flux as the business platform, the main products include annulators, isolators and other passive components, RF microwave small signal devices, RF single chip and so on. Some of the products in the company's communications and electronics business section around the 5G layout have been localized and replaced. With the opening of 5G commercial use, we believe that the company's performance flexibility has been underestimated by the market.
With the acquisition of the remaining shares of Huayang Communications and Nanjing Bio, the layout of 5G is becoming more and more perfect. The company recently announced the acquisition of the remaining shares of Huayang Communications and Nanjing Biao, a holding subsidiary, and plans to raise matching funds to be used for 5G ring expansion project, rotating magnetic ferrite material expansion project, ferrite material R & D center construction project and supplementary liquidity. The market had been worried that part of the equity of the two core subsidiaries of 5G Circulator would affect the release of profits. The acquisition of the remaining equity will dispel market concerns and help to continue to add to the 5G RF device track.
The outbreak of the industry + domestic substitution, the company has obvious advantages in upstream layout. Industry explosion: with the large-scale construction of 5G in 2020, the number of base stations has increased significantly. At the same time, due to the increase in the number of channels in 5G base stations, the amount of circulators and isolators has increased significantly, from 4 channels and 8 channels in the 4G period to 64 channels, and the number of single base stations has reached 192. Domestic substitution: the previous leading manufacturers of rings are American and Japanese manufacturers such as skyworks, molex and TDK. In recent years, with the withdrawal of the United States and the tide of domestic substitution, the transfer trend of communication rings to the domestic industry is obvious; upstream layout: the company has a good layout in the rings and upstream rotating magnetic ferrites, and has obvious advantages among domestic manufacturers.
In addition to the ring, Tianhe Defense Chengdu flux layout RF chip for a long time, is expected to accelerate the volume! According to the 2018 annual report, Tianhe Defense holds a 51% stake in Chengdu Flux, which is mainly engaged in the innovative design, production and sales of radio frequency and millimeter wave analog integrated circuits. The annual report shows that it has completed the research and development of a number of domestic alternative chips covering mainstream communication bands and has the ability to industrialize, and its developed low noise amplifier has achieved small-scale sample delivery. We expect that with the acceleration of localization, Chengdu Flux related products are expected to accelerate the volume.
Fully prepared for 5G, the circulator achieves stable income, enters the burst stage, the RF chip continues to advance, and the domestic replacement of the core key chip is laid out. The company's key customers have purchased the company's circulators, isolators and other communication device products in bulk, and some of the products have formed sustained and stable order revenue; Chengdu Flux has completed the research and development of a number of domestic alternative chips covering the mainstream communication frequency band and has the ability of industrialization, and its developed low-noise amplifier has achieved small-scale sample delivery. The company is expected to achieve a net profit of 0.84 million yuan in 2019-2021, covering it for the first time and giving it a "buy" rating.
Risk hint: the construction progress of 5G is not as expected, the collection share is not as expected, and the fixed increase plan is not as expected.