Key points of investment
A leading domestic supplier of high-end special cables, steadily moving towards international excellence. The company was founded in 2003 and has been deeply involved in the field of special cables for nearly 20 years. It has two major intelligent manufacturing bases in Sichuan and Anhui. Its products cover high-end special cables such as new nuclear power, rail transit, smart grids, military ships, etc., and is an industry-leading provider of comprehensive solutions for high-end special cables. The name was changed to Sunway Co., Ltd. in 2018. Revenue and performance have continued to rise in the past three years, and we are committed to building a world-class special cable company.
Deepen the field of special cables, and investment in new infrastructure and power grids boosts demand sentiment. The company focuses on the high-end special cable market, with high added value and technical content, and high entry requirements. It has established a leading edge in special cable fields such as nuclear power, wind energy, and rubber sheathed cables. New infrastructure is gaining strength in 2020, and demand for upstream and downstream supporting cables is expected to increase; power grid investment has increased, UHV investment has exceeded expectations, and demand for power cables is booming. In 2019, the company's revenue in traditional advantageous markets such as steel, metallurgy, and electrical equipment reached 1,221 billion yuan, an increase of 60% over the previous year. Industry demand improved in 2020 and is expected to continue to rise.
The high-end market has blossomed more and more, and overseas markets are advancing smoothly. In 2019, the company blossomed a lot in the high-end special cable sector, and its revenue scale continued to rise in the fields of nuclear power, new energy and rail transit. Cables and related materials account for about 25% of investment in UHV projects, and demand for UHV cables and supporting cables is expected to increase dramatically. The company has passed the annual assessment of the Sichuan New Energy and UHV Cable Engineering Technology Center and is expected to fully benefit from UHV construction. The company focuses on countries along the “Belt and Road”, establishes strategic partnerships with large central enterprises, and jointly develops overseas markets in a consortium manner, which is expected to maintain rapid growth.
Product and customer structures have been optimized, production efficiency has improved, and profitability has continued to grow steadily. The company adheres to a high-quality development strategy, strictly controls project quality, optimizes the customer structure, and enhances the development of high-value-added high-end special cable business, obtains high-margin orders, and continues to improve production management level and production efficiency. Since 2016, gross margin and net profit margin have continued to increase steadily, increasing to 21.42% in 2019. Furthermore, the company adopts a cost plus pricing method, which is more resistant to price fluctuations of core raw materials.
Investment advice: The company is a leading high-end special cable supplier in China. With brand influence, R&D and product advantages, its share is expected to continue to increase. With the development of new infrastructure, increased investment in power grids, and increased investment in rail transit in 2020, the company's business will continue to soar; the company's products and customer structure continue to be optimized, large-scale effects are highlighted, production efficiency continues to improve, and gross margin is expected to continue to grow. We expect the net profit attributable to the company to reach 174/238/326 million yuan respectively in 2020-2022, and the EPS to be 0.33/0.46/0.63 yuan respectively. Corresponding to the closing price of PE on June 29, 2020, PE was 19.4/14.2/10.4 respectively. This was covered for the first time, giving a rating for increasing holdings.
Risk warning: Macroeconomics falls short of expectations, market competition intensifies, raw material prices fluctuate