The company achieved net profit of 83 million yuan to the mother in Q3 2020, an increase of 138.0% over the previous year. The performance was in line with expectations. The four major “electromagnetic photomedicine” businesses have entered a harvest period, and key products in the target materials business have been supplied in large quantities. It is expected that they will benefit from the high demand in the semiconductor industry in the future, which will become the main driving force for the company's performance. Maintain the company's target price of 18.10 yuan, corresponding to 39 times PE in 2021, and maintain the “buy” rating.
2020Q3 achieved net profit of 83 million yuan to the mother, the best single-quarter profit since 2015. The company achieved a total revenue/net profit of 8,730/149 million yuan in Q1-Q3 2020, +21.0%/+98.9% year on year. Among them, Q3 2020 achieved revenue of 3.640 billion yuan, +8.4% year on year, +27.0% month on month, the highest quarterly revenue in history; achieved net profit of 83 million yuan, +138.0% year on year, +39.1% month on month, the highest quarterly profit since 2015; and achieved net profit of 68 million yuan after deducting non-return mother's net profit of +161.5% year on year and +74.4% month on month.
Overall, the main factors affecting the company's third quarter results were: 1) Q3 gross profit of 178 million yuan, +67.9% year on year, +22.8% month on month. We think it was an increase brought about by the target materials business; 2) Q3 R&D expenses were 34 million yuan, +30.8% year on year, +13.3% month on month, mainly an increase in R&D investment; 3) Q3 income tax expenses totaled 46 million yuan, +5.7% month on month; 3) Q3 income tax expenses were 17 million yuan, +240.0% year on year, +70.0% month on month, mainly an increase in total profit .
The target materials business is already gaining strength, and it is expected that it will become the main driving force for the company's performance in the future. In 2019, the company's target business developed by leaps and bounds. The products were successfully transformed from 4-6 inch to 12 inch target products. Key products such as copper targets and anodes, cobalt targets, titanium targets, etc. were supplied in large quantities. The products covered many high-end customers such as SMIC, Dalian Intel, TSMC, and Beifang Huachuang. The future shift of the semiconductor industry chain to a domestic market will bring opportunities for the development of domestically produced targets, and the company's performance is expected to continue to increase dramatically.
The results of corporate mergers and acquisitions integration, transformation of scientific research results, and market development have been shown, and performance has entered a harvest period. 1) Magnetic sector: successfully achieving the rapid integration of Hongxiushan Magnetic Industry and Magnet, entering the field of high-performance NdFeB magnets in the electroacoustic field, and is expected to enjoy increased performance brought about by the boom in the high-end magnetic materials industry in the future; 2) Optical sector: Youyan Optoelectronics is an internationally leading manufacturer of gallium arsenide monocrystals and has the largest level of gallium arsenide monocrystalline production capacity in China; 3) Medical sector: complete the phased goal of building an orthodontic product family, actively promote the layout of the digital medical device industry, and actively promote the layout of the digital medical device industry, the launch of the first digital dental medical device product, and the official launch of the medical interface system platform line.
Risk factors: The release of target material production capacity fell short of expectations, demand in the semiconductor industry fell short of expectations, and uncertainty about the epidemic.
Investment advice: The company's 2020Q3 performance continues to improve. Considering that after the epidemic gradually abated, the company's four “electromagnetic photomedicine” business segments all entered a performance release period. In particular, the target materials business is expected to benefit from the boom in the semiconductor industry and grow rapidly. We raised the company's net profit forecast for the year 2020 to 2022 to 2201/391/588 million yuan (the original forecast was 186/333/559 million yuan, adjusted based on improved industry sentiment and production capacity release), corresponding to the EPS forecast for 2020-2022 0.26/0.46/0.68 yuan/share, maintaining the target price of 18.10 yuan, corresponding to 39xPE in 2021, maintaining the company's “buy” rating.
