According to the 2020 semi-annual report, Chengdu Yaguang Electronics performance is outstanding. 2020H1, the company achieved revenue of 910 million yuan, an increase of 41.09% over the same period last year; net profit of 49.25 million yuan, down 34.73% from the same period last year; if equity incentive costs were not taken into account, the net profit of home ownership increased by 19.43% over the same period last year. From a business point of view:

1. Chengdu Yaguang's main semiconductor discrete devices, chips, microwave circuits and components, affected by the surge in demand for downstream missiles, electronic countermeasures, satellites, radars and other supporting devices, military electronic business orders and revenue continued to maintain a high growth rate in the first half of the year. Revenue reached 680 million yuan, an increase of 67.95% over the same period last year, and the net profit was 101 million yuan, excluding 23.4377 million yuan in equity incentive costs. An increase of 53.88% over the same period last year.

In the future, the key points of the company's military electronics business business plan for the first half of 2020 are as follows: 1) accelerate the expansion of production capacity to meet the needs of military electronic customers; 2) the joint laboratory built with XX of the second Academy of Aerospace Science and Industry will be in place in the first half of this year, and continue to tackle key technical problems to meet the needs of the rapid growth of RF microsystem applications in the spaceborne and missile-borne fields. 3) to deepen cooperation with core users by jointly building joint laboratories and OEM production lines, closely tracking the core supporting needs of key users, promoting the improvement of technical capability, and further expanding the number and amount of "fixed-point" products supplied. Customer preparation tasks have increased significantly, ensuring the sustained and rapid growth of the company's military electronic orders in the future.

2. The traditional boat business was greatly affected by the epidemic, and the delivery of orders was delayed, with revenue of 189 million yuan, down 10.66% from the same period last year.

In order to facilitate the overall introduction of strategic investors and related capital operation of the boat business, it is proposed to transfer the related assets and liabilities of the parent company to Yiyang Shipping of Sun Company, so as to put all the boat business under the management of Zhuhai Sunbird. We believe that the improvement of the business structure of the boat business is conducive to the relevant capital operation in the future, and divestiture is not ruled out.

We expect the compound growth rate of Yaguang Technology's military chip business to reach 50% in the next five years.

1. The company issues a convertible bond plan to raise no more than 1.89 billion yuan for constellation Internet microwave integrated circuits and new generation microelectronic devices technological transformation projects, as well as low orbit satellite Internet microwave integrated circuit construction projects. The construction period of these two projects is 2 years, the revenue is expected to be 1.875 billion yuan and 1.32 billion yuan respectively, and the net profit is 385.27 million yuan and 271.65 million yuan respectively, with a total net profit of 657 million yuan. Reaching the output of the project will greatly increase the profitability of the company.

2. Based on the three fastest growing military tracks: missiles, satellites and radar. Missiles: the current market size is estimated to be 100 billion yuan, and the CAGR is expected to reach 30% + in the next 5 years. Satellite: the satellite Internet is related to the competition of the next generation communication technology and national security. It is estimated that the space of China's satellite manufacturing market will reach 55 billion yuan in the next five years. Radar: it is a necessary means for advanced combat platforms to achieve long-range and accurate strikes, and it will also be in the stage of rapid growth.

3. At present, it accounts for only 2.5% of the military microwave circuit market, and the market share is expected to increase. At present, the market size of China's military microwave circuits is about 40 billion yuan, and the market share of sub-optical electronics is only 2.5%, ranking third. The top two CLP companies, 13 and 55, are mainly to solve the advanced technology, the matte mechanism is more flexible, the production capacity will be expanded more rapidly, and the market share is expected to increase.

4. The information penetration rate and localization rate of national defense and military equipment have both increased, and the growth rate of military integrated circuits will be significantly higher than that of the military industry as a whole. Take radar as an example, its technology is iterated continuously, the precision is getting higher and higher, and the amount of integrated circuit is more and more. The double improvement of the informatization rate and localization rate of national defense equipment is the main reason why the growth rate of military integrated circuits is higher than that of the industry.

Investment suggestion: the company's military microwave circuit products are in a high-growth track. We estimate that the net profit of Yaguang technology military chips in 2020-2022 will be 4.0,6.0,900 million yuan respectively, and CAGR will reach 50%. Considering the continuous reduction of losses and the possibility of divestiture in the traditional shipbuilding business, we estimate that the return net profit of the company from 2020 to 2022 is 3.4,6.0 and 900 million yuan respectively, the EPS is 0.34,0.60,0.89 yuan respectively, and the corresponding PE is 55,31,21 times. Compared with 100 times the valuation of semiconductors and 50 times the valuation of military carbon fiber listed companies next year, the military chip track where Yaguang Technology is located has a higher growth rate and more deterministic growth. The company may be significantly undervalued and maintain a "buy" rating.

Risk hint: the release of military orders is not as expected; shipbuilding business will still face losses.