Event

2019 Annual report: the company achieved revenue of 279 million yuan in 2019, an increase of 5.34% over the same period last year; net profit of 110 million yuan, up 6.35% over the same period last year; deducting 95 million yuan of non-net profit, down 1.96% from the same period last year; and the weighted average ROE of 16.6%, down 1.0% from the same period last year.

First quarter report of 2020: 2020Q1 achieved revenue of 36.34 million yuan, down 50% from the same period last year; net profit from home was 10.43 million yuan, down 65% from the same period last year; deducting 7.78 million yuan from non-net profit, down 73% from the same period last year; and the weighted average ROE was 1.50%, down 3.22% from the same period last year.

Brief comment

The performance of the annual report is growing steadily, and the next quarterly report is under pressure under the impact of the epidemic.

The company's annual report performance is basically consistent with the previously announced performance of KuaiBao. During the reporting period, the company's performance grew steadily, the traditional information anti-counterfeiting materials business continued to contribute stable cash flow, and the electronic materials business grew rapidly. During the reporting period, revenue reached 23.19 million yuan, an increase of 239% over the same period last year, and a gross profit margin of 48.0%. The proportion of revenue and gross profit of electronic materials reached 8.3% and 6.6%, respectively.

2020Q1, the company's performance declined sharply compared with the same period last year, mainly affected by the epidemic. The company's traditional information anti-counterfeiting materials are mainly high-speed rail train tickets, under the influence of the epidemic, high-speed rail passenger volume declined sharply compared with the same period last year, resulting in pressure on the company's performance. In terms of the passenger volume announced by the Guangzhou-Shenzhen Railway, the passenger volume from January to March 2020 was 796,66 and 1.29 million respectively, down 15%, 90% and 80% respectively from the same period last year. Under the current situation of gradual relief of the domestic epidemic, passenger transport volume has gradually rebounded from the previous year, but there is still a big drop compared with the same period last year. According to people's Daily online, citing information from the Ministry of Transport, the national railway passenger transport volume increased by 17.0% on April 3, down 57.3% from the same period last year.

Information anti-counterfeiting materials are hit in the short term, and it is expected that they can still provide stable cash flow after the recovery of the epidemic.

The company's information anti-counterfeiting material plate products mainly include thermal magnetic tickets and magnetic stripes and other products, thermal magnetic tickets are mainly railway train tickets, namely common blue magnetic tickets, and magnetic stripe products are common magnetic stripe cards. downstream is widely used in commercial retail, transportation, finance, social security and other fields. In terms of thermal magnetic tickets, the company is the first enterprise engaged in the production of thermal magnetic tickets in China, and it is also the largest manufacturer of thermal magnetic tickets in China. In terms of magnetic stripe, the company occupies more than half of the domestic market share, and is also one of the four major international magnetic stripe manufacturers.

Although the traditional business sector has been hit by the epidemic in the short term, after the relief of the epidemic, with the gradual recovery of railway passenger transport volume, its cash flow is expected to gradually recover. In the long run, although it faces the replacement of e-ticket and EMV migration, it is expected to provide sufficient cash flow for the company's transformation and help the company through the window period of transformation.

Electronic functional materials open the space for future growth

As the company's traditional business touched the ceiling of the industry, the company gradually began to lay out the electronic functional materials plate in 2018: in August 2018, the company announced the termination of the "Thermal Magnetic ticket production Line expansion Project" and signed an investment agreement with Sichuan Chengmei Petrochemical Park to build an electronic materials R & D industrial base in Chengmei Petrochemical Park, focusing on electromagnetic shielding film, pressure test film and other products, with a total investment of 500 million yuan and a construction period of 3 years. After reaching production, the annual output value is 400 million yuan and the annual tax revenue is 22.5 million yuan.

The downstream of electromagnetic shielding film is mainly used in flexible circuit board FPC. Due to the prominent problem of 5G signal crosstalk, the amount of electromagnetic shielding film in FPC will increase, resulting in high demand growth. According to MarketsAndMarkets, the global electromagnetic shielding market will grow from US $6.3 billion in 2019 to US $8.2 billion in 2024, with an average annual growth rate of 5.34%, while the market space for electromagnetic shielding films for FPC will reach nearly 4 billion yuan in the future. In the domestic market, China's electromagnetic shielding film market grew at an average annual rate of 21% from 2014 to 2017, and is expected to maintain a growth rate of nearly 20% in the next few years.

Pressure test film is a kind of material which can accurately measure pressure size, pressure distribution and pressure balance. it is used to evaluate the status of production and testing equipment in many fields, such as liquid crystal display, semiconductor, electronic circuit industry, mechanical equipment and so on. The main global manufacturers of stress test films include Tekscan (USA), Fujifilm Corporation (Japan), Sensor Expert (USA), Bestech Australia Pty.Ltd (Australia) and so on. Domestic products are highly dependent on imports. Under the background of the current localization of panels and semiconductors, the company's stress test film will benefit from both the incremental market and the import substitution market. At present, some of the company's new products, such as electromagnetic wave shielding film and pressure test film, have achieved partial sales.

It is estimated that the company's net profit in 2020 and 2021 will be 0.97yuan and 149 million yuan respectively, corresponding to PE 24X and 16X, maintaining an overweight rating.

Risk analysis: epidemic-related risks, lower-than-expected risks of electronic materials, and policy shutdown risks.