Main points of investment
Debt restructuring of founder Group has attracted market attention.
Founder Technology issued a notice on February 19 showing that the Beijing No. 1 Intermediate people's Court ruled to accept the reorganization of founder Group.
Founder Technology is the leading domestic PCB company whose valuation is suppressed by many factors.
Founder technology business covers PCB, broadband services and software system integration business. PCB product applications include communication base stations, mobile phones, servers and other fields, customers include Huawei, ZTE, OPPO, VIVO, XIAOMI and other core enterprises. According to the 2019 semi-annual report, the company's PCB business achieved a net profit of 113 million yuan, an increase of 79.49% over the same period last year. However, due to concerns about the group debt crisis and declining broadband business performance, the company's market capitalization has been low in the industry.
Debt restructuring and asset provision accelerate valuation repair expectations
Founder Group debt restructuring into the judicial process, founder Technology ownership structure may have an impact. Considering the state-owned assets attribute of founder Technology and the location of the core PCB assets, we think that we should focus on the strategic investment dynamics of local state-owned assets. From the impact of the performance of broadband services, the company's 2019 performance forecast mentioned that the proposed Fangzheng broadband business 797 million yuan. We make a quantitative analysis of the profit impact according to the data, and expect to reduce the annual depreciation expense by 138 million yuan. PCB business grows rapidly with the high boom of 5G cycle. Zhuhai founder, a subsidiary of the company, has invested about 1 billion yuan to build a new Zhuhai founder PCB high-end intelligent industrial base project, and the new production capacity is expected to reach 1.44 billion yuan per year. Overall, the company's PCB business is expected to grow from 2.4 billion in 2018 to 5 billion in revenue. If the company's equity structure is further clarified in the future, and various lines of business such as broadband turn around losses, the company's valuation is expected to return to a reasonable level.
Investment suggestion
We expect the company to achieve operating income of 5.986 billion yuan, 6.553 billion yuan and 6.851 billion yuan from 2019 to 2021, an increase of 5.00%, 6.13% and 7.84% respectively over the same period last year; the net profit of shareholders belonging to the parent company is-1.301 billion yuan, 26 million yuan and 251 million yuan; the EPS is-0.59,0.01 and 0.11 yuan respectively, corresponding to 30X in 2021. The "overweight" rating will be covered for the first time in the next six months.
Main risk
(1) the ownership structure is not as good as expected; (2) the profitability of broadband business is reduced.
