3Q20's performance is much higher than we expected.
Vibrating Core Technology announced 3Q results: revenue from the first to third quarters totaled 322 million yuan, an increase of 6.78% over the same period last year; the net profit from its mother was 51 million yuan, deducting 33 million yuan from non-net profit. In a single quarter, 3Q20's revenue was 152 million yuan, an increase of 35.71% over the same period last year, and its net profit was 39 million yuan per quarter, deducting 30 million yuan from non-net profit in a single quarter, which was higher than our expectation, mainly due to the increase in the proportion of revenue from Beidou and integrated circuit business. The company's comprehensive gross profit margin increased significantly.
Trend of development
The company posted its strongest quarterly performance in recent years. The company's 3Q20 revenue was 152 million yuan, a year-on-year increase of 35.71%. The year-on-year growth rate continued to improve after becoming a regular employee in the second quarter, and reached the highest growth rate for eight consecutive quarters. The net profit in a single quarter was 39 million yuan, which was significantly higher than that in the same period last year and month-on-month. The improvement in product structure led to a sharp increase in gross profit margin from 37.14% in the same period last year to 61.78%. In addition, the rate of management expenses decreased significantly in the third quarter. Deducting 30 million yuan in non-net profit in a single quarter is the highest growth rate since the company went public. We believe that this shows the high demand downstream, and also reflects that the company has maintained a good operating capacity.
The "Beidou + integrated circuit" double carriage is expected to improve further in the future. 1) in terms of Beidou business, the company has formed more than 50 Beidou terminals ranging from baseband and RF chips to handheld, vehicle-mounted and ground-based terminals. Then to the business layout of "components-terminals-systems and operations" of platform operation services such as ground disaster monitoring based on Beidou. Benefiting from the growth in industry orders, the company's revenue from satellite navigation and positioning terminals increased by 24.0% in the first half of the year compared with the same period last year. 2) in terms of integrated circuit business, since the beginning of this year, the company has broken through the key technologies such as radio frequency transceiver, high-speed interface, SDR and communications, and realized the innovation and upgrading of silicon-based multi-function MMIC, Beidou 3 devices, software radio, TR digital card handling and other products. The products are in the lead in China, gradually expanding from dedicated market sales to communications, radio and television, automotive, electronics and other industries. In the first half of the year, the company's revenue from components and module products increased by 22.7% compared with the same period last year.
Continue to be optimistic about the Beidou industrial chain. According to the White Paper on the Development of China's Satellite Navigation and location Service Industry in 2020, the total output value of China's satellite navigation and location service industry is more than 200 billion yuan in 2020. Facing the future, with the networking of "Beidou" No. 3, we believe that the company is expected to expand the market share of navigation terminal products and operational services by relying on its own complete layout.
Profit forecast and valuation
As the company's gross profit margin exceeds our expectations, and we believe that the company's Beidou and components business will maintain high growth in the next two years, we will increase the 2020 company's 2021 net profit by 116.4% to 89.28 million yuan / 127.13 million yuan.
The current share price corresponds to 1.91x PEG in 2021. Maintain the neutral rating, but due to the expected acceleration of the "Beidou 3" networking process and strong demand expectations downstream during the "14th five-year Plan" period, we raised the target price by 28.0% to 16.00 yuan, corresponding to 1.66 x PEG in 2021, which is 13.4% lower than the current stock price.
Risk
The landing of the Beidou order was lower than expected; there were internal disputes and pending lawsuits among the shareholders of Guoteng Electronics Group, the controlling shareholder of the listed company.