Main points of investment
Event: on August 26, Zhongshi Science and Technology announced its mid-2020 results: operating income in the first half of the year was 397 million yuan, an increase of 56.99% over the same period last year, and net profit in the first half was 63 million yuan, an increase of 127.86% over the same period last year.
Benefiting from the new demand of the 5G market, the performance of the main business grew steadily: the H1 performance of Zhongshi Science and Technology increased steadily in 2020: H1 operating income increased by 56.99% over the same period last year, of which Q2 increased by 46.74% The net profit of homing increased by 127.86% compared with the same period last year, of which Q2 increased by 182.15%, mainly because during the reporting period, the company benefited from the continuous improvement of new projects and new product business in the smartphone, laptop, tablet, smart wearable products and other markets, as well as the increase in the supply share of major customers at home and abroad, and the sales revenue increased significantly compared with the same period last year. At the same time, due to the substantial increase in sales revenue compared with the same period last year, the sufficient utilization of the company's production capacity, the formation of economies of scale, and the stabilization of gross profit, the company's net profit in the first half of 2020 was also significantly higher than that of the same period last year.
Continuously strengthen the forward-looking layout of technology and create long-term power: in 2017, the company supplied the heat dissipation of graphite in Apple Inc's mobile phones in large quantities and became a mainstream supplier, leading the related winding technology industry, and successfully entered the supply chain of Huawei, vivo and other domestic mobile phone manufacturers in 2019; at the same time, the company acquired a 51% stake in Keweidi in 2019 to complete the technical integration of graphite + VC and graphite + heat pipe combined heat dissipation solutions. At the same time, the company raised 831 million yuan in 2020 for the development of 5G efficient heat dissipation module, which is mainly used for the construction of 5G smart phones, servers, 5G base stations, etc., which will be able to meet the cooling upgrade needs of 5G mobile phones and the high-power cooling needs of 5G base stations. We believe that fundraising will further help enhance the company's market competitiveness; at the same time, the impact of Apple Inc's decline in smartphone sales on the company will be limited, and the rise of major domestic customers and the introduction of high ASP numbers next year will bring greater flexibility to the company's future performance.
The upgrade of 5G heat dissipation "graphite + heat pipe, heat soaking plate" is expected to bring about an increase in quantity and price: in addition to innovative changes such as radio frequency devices and LCP materials, the computing power of 5G chip is at least 5 times that of 4G, and its power consumption is 2.5 times that of 4G. At the same time, with the increase of AI technology and AR applications, the computing speed and data processing capacity of mobile phones continue to improve, and the heat generation of mobile phones continues to increase. Efficient heat dissipation has become a rigid demand for 5G mobile phones. At present, the more mature heat dissipation schemes are heat pipe, graphite sheet, and soaking plate (VC). As 5G mobile phones such as XIAOMI 10, Android Samsung S20, Huawei Mate20X and other 5G mobile phones begin to configure the combined heat dissipation scheme of graphite and VC, the domestic cooling faucets have been opened one after another. We believe that with the release of a variety of mobile phones by overseas customers in 2020, the heat pipe developed by the company, the mass production of VC business, and the pull of 5G base stations, the company's products will continue to benefit from both volume and price increases.
Earnings forecast and investment rating: we expect operating income from 2020 to 2022 to be 985 million yuan, 1.293 billion yuan and 1.603 billion yuan, respectively, and earnings per share to be 0.68,0.97,1.23 yuan, respectively, with a corresponding PE valuation of 47.5719xpx 26.29 times, maintaining the "buy" rating.
Risk hint: the release of terminal demand is lower than expected; the macro economy continues to decline.
