Main points of investment
Event: on August 14, Chongda Technology announced its results. In the first half of 2020, the company achieved operating income of 2.168 billion yuan, an increase of 17.08% over the same period last year, and a net profit of 270 million yuan, an increase of 1.81% over the same period last year.
The performance growth rate has picked up and continues to be optimistic about the future 5G performance increment: 2020H1, in the context of the global epidemic and Sino-US trade frictions, the company has actively adjusted its development strategy, achieved remarkable results in domestic sales, medium and large quantities and high-end products, and maintained a good growth trend. From the revenue end point of view, 2020H1 operating income and return net profit are 2.168 billion yuan (YOY+17.08%) and 270 million yuan (YOY+1.81%), of which Q2 operating income and return net profit are 1.235 billion yuan and 144 million yuan respectively, an increase of 30.62% and 2.00% over the same period last year.
PCB full range of product layout, consolidate the layout of major customers: in 2019, the company successively acquired 20% of Sandeguan, 40% of Punover and 20% of Dalian Electronics, expanding the products to the field of FPC and IC board, and realizing the coverage of the full range of PCB products. The proportion of mass sales area of 2020H1 company has increased to 54.08% and 46.14% of the total sales area. In terms of marketing layout, the company actively strengthens the domestic key customer strategy to minimize the impact of Sino-US trade frictions. The proportion of product applications in the communications industry has reached 35%, and it has established stable business relationships with a number of major international customers and entered into its core suppliers of supercomputing and 5G base station products. We believe that with the steady progress of the company's major customer strategy and the layout of the full range of products, the performance will fully benefit from the transition of the PCB market.
Benefiting from the accelerated promotion of 5G, high-end PCB leads the future growth: in terms of 5G products, the acceleration of 5G infrastructure and key customer strategy, the rapid growth of orders for 5G-related products of 2020H1 ZTE, and the breakthrough of YOY+4487.94%, of high-frequency PCB products. In terms of high-end PCB products, the layout of high-end products such as HDI has achieved remarkable results: 2020H1 HDI product sales area YOY+40.23%. To sum up, we are optimistic that in the future the company will continue to benefit from the high-end PCB market demand growth trend to drive long-term steady growth.
R & D investment continues to increase, reserve core advantages: the company's R & D investment continues to increase, with R & D expenditure of 138 million yuan in the first half of 2020. YOY+28.39%, will continue to increase R & D investment in 5G-related products in the future, especially in communication transmission network, core network, data center and other application fields, to further improve the company's overall R & D strength, so as to enhance the company's product competitiveness. Do a good job of technology and major customer reserve for the mass production of high-density and high-speed multilayer products of 5G base stations.
Profit forecast and investment rating: we continue to be bullish on the future development of Chongda Technology. It is estimated that the operating income from 2020 to 2022 will be 4.579 billion yuan, 5.957 billion yuan and 7.245 billion yuan, respectively, with a net profit of 488 million yuan, 646 million yuan and 903 million yuan, corresponding to EPS of 0.55,0.73,1.02 yuan. The corresponding PE valuation score is 36bp, 27and20X, maintaining the "buy" rating.
Risk hint: 5G orders are not as expected; capacity release is not as expected.