Event: on April 9, the company issued a forecast for the first quarter of 2020, which is expected to achieve a net profit of 40.3846 million yuan to 46.45 million yuan, an increase of 0% and 15.02% over the same period last year.
There was a small endogenous growth in the first quarter, and the performance was basically in line with expectations. In the first quarter of 2020, the company was mainly affected by COVID-19 's epidemic situation, and the resumption of work on the industrial chain was delayed, which had a certain impact on the company's operation. During the reporting period, the company's operating income increased significantly compared with the same period last year, mainly due to the acquisition and merger of Bowei Communications, Kunshan Pindai, Zhuhai Runxingtai and Jiangsu Zhongdi Xincai since the second quarter of 2019. Excluding the impact of the merger, the company's operating income and net profit for the current period increased less than that of the same period last year.
The antenna business continues to grow, and the 5G industrialization project is progressing steadily. According to the announcement, the company's antenna vibrator began mass production in July 2019 and is currently in the climbing stage. At present, the subsidiary Bowei Communications has begun to supply to mainstream communications equipment manufacturers, with a net profit of about 16 million in the first three quarters of 2019. In July 2019, the company issued a fixed increase announcement to invest in the construction of 5G industrialization projects to enhance the production capacity of vibrators, radome and structural components. In February 2020, the company issued a revised fixed increase plan: it is proposed to issue no more than 60 million shares (accounting for no more than 20% of the total share capital) to raise about 700 million yuan for the 5G communication device industrialization project (500 million yuan) and supplement the working capital (200 million yuan). Among them, the 5G communication device industrialization project should be used to produce a new generation of antenna diaphragm, radome and all kinds of structural parts suitable for switches, servers and routers.
According to the feasibility report, the project plans to invest 620 million yuan, the construction period is 24 months, and the after-tax IRR is 18.69%.
Epitaxial mergers and acquisitions and capital increase subsidiaries, continue to strengthen the electromagnetic shielding and heat dissipation layout of base station / terminal / Datong products. The company completed the merger and acquisition of Runxingtai and Pindai in the first half of 2019, in which Runxingtai's main semi-solid products can be used in 5G base stations; Kunshan Pindai's main heat dissipation module, with heat pipe / VC, stamping parts and fan technology and products. At present, the company has started customer certification and proofing work on the scheme of heat pipe + graphite sheet or VC+ graphite sheet. According to the announcement, Kunshan Pindai earns about $10 million a month on Q3 in 2019, while Runxingtai earns about $30 million a month. From January to September 2019, Runxingtai realized a net profit of about 8 million. On May 17, 2019, the company announced that it planned to purchase 36% of Zhongdi New Materials with its own capital of 28.8 million yuan. On September 10, 2019, the company announced that it planned to buy the remaining 10 per cent of Jiangsu Geyou, a holding subsidiary, with its own capital of 13.46 million yuan (from 70 per cent to 80 per cent). The company continues to expand mergers and acquisitions, increase capital subsidiaries, and continue to strengthen the electromagnetic shielding and heat dissipation layout of base station / terminal / Datong products.
The major customers of mobile phone terminal business are progressing smoothly, and their production capacity is gradually climbing. According to the company's announcement, the communications industry accounted for about 30% of the company's revenue in the first three quarters of 2019, mobile phone terminals accounted for about 45% to 50%, and computers and servers accounted for about 15%. By region, the company accounted for about 20% of overseas revenue in the first three quarters of 2019 (customers are mainly Pegatron, Cisco Systems, Facebook Inc, Samsung, etc.). The company's growth in mobile terminals in 2019 is mainly due to 1) the supply of Samsung phones, and the gradual climb of the cooperation project between the company and Samsung in 2019Q2; 2) due to the increment of key customer H (of which H customers accounted for about 20% of sales in the first three quarters). We believe that although COVID-19 's epidemic has had a certain impact on the company's operation in the first quarter, the company's downstream customers are highly qualified, and the company is highly competitive in the field of supporting heat dissipation and shielding products needed for 5G terminals and 5G base stations. Future performance is expected to continue the high-speed growth trend from 2018 to 2019.
Investment suggestion: we expect the company's income from 2020 to 2021 to be 2.89 billion yuan (+ 42.5%) and 3.92 billion yuan (+ 35.9%) respectively, and the net profits attributed to shareholders of listed companies are 487 million yuan (+ 39%) and 648 million yuan (+ 33.2%) respectively. The corresponding EPS is 1.59 yuan and 2.12 yuan respectively, and the corresponding PE is 31 times and 23 times respectively. Combined with the company's future development expectations driven by 5G, we maintain the "Buy-A" investment rating.
Risk hint: the effect of M & An integration is uncertain.