Q3 net profit is in line with expectations, military information + new infrastructure business is expected to bring new growth points the company released the third quarter of 2020 report, Q3 revenue of 785 million yuan (YoY- 14.32%) in a single quarter, the realization of home net profit of 25 million yuan (YoY-11.05%), located in the middle of the performance forecast (return to home net profit forecast range of 0.22 billion to 0.27 million yuan), in line with expectations. The company is progressing smoothly in the fields of military informatization, smart city and data center, and is expected to usher in a performance release period next year. In the medium and long term, the improvement of the information level of the national defense industry, the construction of 5G network and the improvement of cloud computing penetration will drive the improvement of the company's main business. We estimate that the company's EPS in 2020-2022 will be 0.11 yuan 0.39pm 0.50 yuan respectively, maintaining the "overweight" rating.
The missile-borne products won the bid for new models, and the steady growth of military information business was driven by the needs of military customers. In the first three quarters, the company's military electronic supporting business orders increased steadily, and missile-borne computer products won the bid for new models. The company's missile-borne computer products are used in guided missiles, including air missiles, cruise missiles, air defense missiles, strategic missiles and other defense air force equipment. At the same time, the research and development of the company's new products is progressing smoothly. In the first half of 2020, the measurement and control ground station data link system developed by Chengdu Fourier has completed the prototype trial production and design appraisal, and launched multi-channel satellite communication signal demodulator; China Airlines has released a number of new products, such as high-performance VPX general platform, and achieved another breakthrough in major models of China Air data acquisition products.
Won the bid for Shenzhen Pengcheng Yunnao project, the smart city project is expected to be completed in the fourth quarter, and the company will further improve the strategic layout of 5G, data center, smart city and other areas under the background of "new infrastructure". According to the company's announcement on October 29, the special message has become the supplier of the first phase of the information project of the Yunnao II expansion project in Pengcheng, Shenzhen, with a bid amount of 2.818 billion yuan, and the company's new infrastructure business will be in the next city. In addition, the company's smart city innovation base project is under orderly construction, and the company is expected to complete the construction and put into use in the fourth quarter. With regard to the data center, special information announced on September 8 that it signed a strategic cooperation agreement with the Shenzhen Infrastructure Investment Fund to build a strategic cooperation relationship in new infrastructure areas such as the data center. The two sides will set up a joint venture company to invest and operate in the data center field.
Q3 gross profit margin increased year-on-year, and projects under construction increased by 61.64% compared with the beginning of the year. The company's Q3 comprehensive gross profit margin was 21.99%, an increase in 3.89pct compared with the same period last year. Q3 sales expense rate fell 0.49pct to 3.13% compared with the same period last year. The company increased its R & D investment in preparation for new infrastructure and military information business, and the rate of Q3 R & D expenditure increased by 1.85pct to 7.11% over the same period last year. Due to the investment in the smart city project, by the end of the third quarter of 2020, the company's projects under construction increased by 61.64% to 282 million yuan compared with the beginning of the year.
Maintain the "overweight" rating
We are optimistic about the company's long-term growth in military informatization and new infrastructure business. We keep the profit forecast unchanged, and estimate that the EPS of the company in 2020-2022 is 0.11 USD 0.39pm 0.50 respectively. Based on the segment valuation method (see page 2 for specific estimates), we believe that the reasonable valuation of the company in 2021 is 11.34 billion yuan, corresponding to the target price of 13.89 yuan (the previous value is 13.79 yuan), maintaining the "overweight" rating.
Risk hint: increased competition in the optical fiber and cable industry has led to a decline in profitability; due to the contraction of energy consumption indicators in first-tier cities, data center business expansion is limited.