Key points of the report:
The solenoid wire and trackpad business is growing steadily
The company's traditional business includes high-end solenoid wires and touch display module products. The company mainly targets overseas markets and has high-quality global customers such as Walmart, Belkin, Maisot Electronics, and Honeywell. The downstream of the company is mainly in the fields of smart medical care, smart cars, smart homes, and smart transportation, and demand has maintained steady growth.
Acquire North to lay out the 5G RF filter industry
The company invested 127 million yuan to acquire 10.1% of North's shares. North is the leading BAW filter in China.
(1) North has more than 300 technical patents and is one of the first Baw filter manufacturers with the strongest technical strength to start developing Baw filters in China. (2) North has its own filter fab and has production lines in Tianjin, Nanchang, and Mianyang. The company is the only Baw filter supplier with Fab in China. In the filter industry, the world's major manufacturers are mainly using the IDM model, and building their own Fabs is the core competitive advantage of filter companies. According to the company's official website, North's Tianjin plant has a filter delivery capacity of 300 million units/year, and the Nanchang plant has a delivery capacity of 1.2 billion units/year. The total planned investment of the Mianyang plant is 1.28 billion yuan. At that time, it will have a production capacity of 11 billion FBAR filters.
The use of Baw filters has increased dramatically in the 5G era
In 2020, the global RF front-end market will exceed 150 billion yuan, of which the filter market will exceed 100 billion yuan.
Entering the 5G era, the use of RF filters has increased dramatically. According to Qorvo data, the number of filters used in 4G phones is about 40, while 5G phones will increase to 70. Also, in the frequency band above 3GHz, Baw filters are the mainstream solution. As 5G continues to penetrate, Baw's share of output value in the filter market continues to increase.
Investment advice and profit forecasting
We are optimistic about the company's industrial layout in the RF filter field. With North's many years of technology accumulation in the field of filters and the advantages of the IDM business model, the company is expected to open a new chapter of development on the RF circuit.
Revenue is expected to be 2,465/28.26/3.272 billion yuan in 2020-2022, and net profit of 1.30/152/174 million yuan (profit forecasts do not take into account Norse's contribution). The current market capitalization corresponds to the 2020-2022 PE of 55/47/42 times, respectively, giving it an “increase in holdings” rating.
Risk warning
1) Risk of 5G penetration falling short of expectations; 2) Risk of judicial disputes with international vendors; 3) Risk of customer expansion falling short of expectations.