Event: On April 11, the company released its earnings forecast for the first quarter of 2020. In the first quarter of 2020, the company achieved net profit of 47.0000 to 52.0 million yuan. In the same period last year, the company had a loss of 81.378 million yuan. The current performance turned a year-on-year loss into a profit.
Shipments of smartwatches and bracelets are still expected to continue to grow in the context of the pandemic. Smartwatches and bracelets have now been given sufficient health properties to meet consumers' needs in health monitoring and exercise assistance. According to Canalys' latest forecast on April 9, global smartwatch and bracelet shipments in 2020 will increase 3.8% year on year, and Greater China will achieve the highest global growth rate of 17.1%. Among consumer electronics products, it is relatively less affected by the pandemic.
Huawei smartwatch shipments in the first quarter were in line with expectations, and Star Technology is expected to continue to benefit. In 2019, Huawei relied on the popularity of GT2 series watches to gain a high market share of 42% of smartwatches in the Chinese market. Sales of Huawei smartwatches were still booming in the first quarter, with an average monthly shipment volume of around 1 million units, in line with expectations. As the main supplier of glass covers for GT2 series watches, Star Technology is expected to continue to benefit.
New 5G infrastructure is speeding up, and we are optimistic about the development of 5G mobile phones for a long time. Plastic structural parts have great potential. Since 2020, various government departments have repeatedly emphasized speeding up the construction of new infrastructure represented by 5G and promoting the layout of 5G networks. As a leading plastic structural component company in China, the subsidiary Lianmao has established good cooperative relationships with terminal manufacturers such as Huawei and Xiaomi. The company will fully benefit from the continuous release of 5G phones.
The fixed increase project helped expand production capacity, and the “Pingxiang effect” gradually became apparent. By introducing strategic investors, the company plans to raise no more than 1.3 billion yuan to acquire the remaining shares in Jiangxi Star, break through the bottleneck in 3D glass production capacity, and give full play to the company's technical advantages in the 3D glass field. The actual controller of the company, the Pingxiang Economic Development Zone Management Committee, also granted preferential policies to the company in various areas such as rent and financing to enhance the competitiveness of the company's products.
Company profit forecast and investment rating: The company is expected to achieve net profit of 165 million yuan, 339 million yuan and 500 million yuan in 2019-2021. EPS is 0.17 yuan, 0.35 yuan, and 0.52 yuan respectively. The corresponding PE is 39.3 times, 19.06 times, and 12.94 times, respectively, maintaining the “highly recommended” rating.
Risk warning: The severity of the COVID-19 epidemic has exceeded expectations, leading to a shortage of raw material supply; 3D glass production capacity construction progress has fallen short of expectations; product prices have declined due to increased competition in the industry, etc.