Event: on April 27, 2020, the company released its annual report in 2019 and its first quarterly report in 2020. In 2019, the company achieved revenue of 1.871 billion yuan, an increase of 46.2 percent over the same period last year, and a net profit of 95 million yuan, an increase of 96.4 percent over the same period last year. Revenue in the first quarter of 2020 was 261 million yuan, down 25.7 percent from the same period last year, and net profit loss was 3.562 million yuan, down 124.0 percent from the same period last year.
Comments:
1. The performance is slightly lower than expected, and the growth of antenna + RF business can be expected.
In 2019, the company achieved revenue of 1.871 billion yuan, an increase of 46.2% over the same period last year, and a net profit of 95 million yuan, an increase of 96.4% over the same period last year. With the rapid growth of 5G mobile communication equipment products and the company's expansion into overseas markets, the company's annual revenue and performance have achieved substantial growth, which is slightly lower than market expectations due to short-term factors.
The company is mainly engaged in two parts of business: one is precision box system, and the other is mobile communication equipment.
First, precision box system: precision box system is the company's traditional business, the main products include elevator car system and other special equipment box system. In 2019, the operating income was 648 million yuan, an increase of 7.64% over the same period last year. In recent years, the prices of major raw materials are high, but through the company's continuous cost reduction and efficiency work and strengthening the promotion of fine production management, the company's precision box system business has bottomed out.
Second, mobile communication equipment: the company's business is mainly implemented by subsidiaries Bofatt and Jetband Electronics. In 2019, the company's 5G antenna became the core supplier of ZTE, making new breakthroughs in new markets such as Ericsson and North America, and laying out ceramic filters ahead of schedule to complete the first phase of production capacity construction. In 2019, the sector achieved operating income of 1.232 billion yuan, an increase of 86.99% over the same period last year.
From a product point of view, revenue from antennas and radio frequency devices increased rapidly in 2019, with revenue from antennas growing from 241 million yuan to 654 million yuan, an increase of 171.45 percent over the same period last year, and revenue from radio frequency devices increased from 313 million yuan to 470 million yuan, an increase of 50.14 percent over the same period last year. In 2019, the revenue of elevator car system, special equipment box system, precision metal structure and other products was 506 million yuan, 89 million yuan and 121 million yuan respectively, which was basically the same as that of the same period last year.
From a regional point of view, the company's domestic and foreign markets achieved operating income of 1.435 billion yuan and 437 million yuan respectively in 2019, an increase of 47.78% and 41.26% respectively over the same period last year, accounting for 76.66% and 23.34% of operating income respectively. Compared with the same period in 2018, the proportion of domestic business increased by 0.81 percentage points.
In the first quarter of 2020, the company realized operating income of 2616.1 billion yuan. The year-on-year decrease was 25.6725.67 25.67%, and the net profit loss was 356.22 356.22 3.5622 million yuan, a year-on-year decrease of 124.01 124.01%. The company suffered a loss in the first quarter, mainly due to the general delay in the resumption of work and production in the company and its upstream and downstream enterprises due to the epidemic; due to the lack of epidemic prevention materials and the unsmooth flow of personnel and raw materials, the company's production efficiency decreased, production and management costs increased, and the impact of non-recurrent profit and loss on the company's net profit was 2.454 million yuan. The company's first-quarter results were lower than expected, and we believe that in addition to the impact of the epidemic, the lower-than-expected orders of downstream customers for new products are also the main reason. The company has good fundamentals and has fully resumed work. With the improvement of the epidemic in the second quarter, the construction of 5G network and the release of new product orders, profits are expected to increase.
2. the gross profit margin of antenna and RF business has increased, and the investment in R & D has continued to increase.
In terms of gross profit margin, in 2019, the gross profit margin of antenna business is 26.68%, that of RF devices is 16.14%, that of elevator box system is 11.30%, and that of special equipment box system is 17.03%. In recent years, the gross profit margin of the main products of the precision box system in the company's traditional business shows a downward trend, while the gross profit margin of the main products of the mobile communication equipment business, antennas and radio frequency devices, shows an upward trend, which is expected to effectively improve the overall profitability of the company.
In terms of expenses, in 2019, the company's sales expenses increased by 54.50% compared with the same period last year, and the sales expense rate was 2.22%, which was 0.12% higher than the same period last year; the management expenses increased by 35.0%, and the management expense rate was 4.20%, down 0.35% from the same period last year. Financial expenses increased by 355.23% over the same period last year, and the financial expense rate was 0.07%, up 0.11% from the same period last year, mainly due to the increase in the scale of sales, the use of bank acceptance bills to settle more, and the increase in bank charges.
The R & D expenditure was 82 million yuan, up 75.17% from the same period last year, and the R & D expenditure rate was 4.36%, up 0.72% from the same period last year. The company attaches importance to the research and development of new products and technologies, continuously increases investment in technology research and development, and improves technical equipment and scientific research conditions.
3. The cash flow performed well in 2019 and turned negative due to the epidemic in the first quarter of 2020.
The company realized 273 million yuan of operating cash flow in 2019, from negative to positive compared with the same period last year. The operating cash flow in the first quarter of 2020 was-82 million yuan, down 222.18% from the same period last year. The main reason for the good performance of the company's operating cash flow in 2019 is that the company's business is developing well, and the increase in sales revenue leads to an increase in cash received; the net cash flow generated by the company's investment activities is-66 million yuan, an increase of 56.22% over the same period last year, mainly due to the increase in the number of financial products redeemed. At the same time, the net cash flow generated by the company's fund-raising activities was-108 million yuan, down 161.39% from the same period last year, mainly due to the large amount of funds raised by the company's non-public offering shares in the previous period. The operating cash flow was negative in the first quarter of 2020, mainly due to the decline in sales and increased costs in the first quarter of the year affected by the epidemic.
4. with integrated production capacity of antenna and filter, the company is expected to become a 5G RF leader.
The company is an integrated leading enterprise with the production capacity of 4G/5G base station antenna and filter while being scarce in China. 5G antennas and filters are developing in the direction of miniaturization and integration, and become the largest investment part of the wireless part. The company has obvious advantages as a scarce antenna + dielectric filter integrated production enterprise, the company itself has strong 4G/5G base station antenna R & D and manufacturing capabilities, and at the same time further strengthen the layout of the existing ceramic dielectric filter business, the future is expected to seize the opportunity of intergenerational replacement of RF products AFU. At present, the company's 5G antenna has successfully entered ZTE Corporation's core supplier system, realizing a qualitative leap; the new customer Ericsson began to enter the stage of batch supply in the third quarter, cultivating a new profit growth point; overseas platform Dengyo USA won the first order at the end of 2018, and the company's antenna products successfully entered the North American market and opened up a new market. The acquisition of Jetband Electronics, the layout of ceramic waveguide filter production capacity in advance, the first phase of capacity construction has now been completed.
5. New products + new markets determine the future growth of the company
China Mobile Limited has completed the procurement of 5G base stations in 2020, and the joint procurement of China Unicom and China Telecom Corporation will also be completed in the near future, and the domestic 5G network has entered a new stage of scale construction. This year, the construction scale of 5G base stations of the three major operators is expected to exceed 800000 stations, and domestic mainstream equipment manufacturers will occupy the main share. The company has a first-mover advantage in new RF products such as 5G antennas and 5G ceramic waveguide filters, and occupies a large share of downstream equipment vendor customers. With new products and new market layout, the company can grow in the future. The first phase of the company's ceramic waveguide filter expansion project has completed equipment relocation and commissioning, with a planned production capacity of about 1 million pieces per month. considering the subsequent growth of market demand, the company is actively preparing for the second phase of 5G ceramic waveguide filter expansion and construction. Ceramic dielectric filter orders are expected to gradually increase with the construction of 5G network, and the company will promote ceramic waveguide filters and antenna products into Ericsson's supplier system. The company's base station antenna products have entered the US market and will actively participate in the follow-up bidding of USCC and other operators, and actively promote the company's antenna products into the supplier system of T-Mobile, AT&T Inc and other operators. With new products and new market, the company is expected to open up incremental space, achieve the rapid development of the main business of communications, and grow into a new leader of RF.
6. Domestic scarce antenna + filter integrated RF leader to maintain the "highly recommended-A" rating.
As the 5G network enters the stage of scale construction, the trend of 5G base station antenna towards miniaturization integration is obvious. As a scarce integrated manufacturer of antenna and filter in the market, the company has a strong competitive advantage. It is expected to seize the opportunity of intergenerational replacement of RF products. While stabilizing the stock market of 4G antennas and filters, the company actively arranges the business of 5G antennas and 5G ceramic dielectric filters, which will open up the incremental space of the 5G market and achieve the rapid development of the company's communications business performance. The company is currently the core supplier of ZTE, and has entered the supplier system of Ericsson, successfully expanded the American market, and is expected to break through new customers and open up new market growth space and grow into a new leader of RF.
It is estimated that the net profit from 2020 to 2022 is about 180 million yuan, 260 million yuan and 265 million yuan respectively, corresponding to the PE of 32.2 X, 22.3X and 21.9X respectively from 2020 to 2022, maintaining the "highly recommended-A" rating.
Risk hints: the construction progress of 5G is not as expected, the market development of new customers and new products is not as expected, the gross profit margin of products is falling too fast, and the risk of further deterioration of the epidemic situation.
