Event: the company released its quarterly report for 2020, with operating income of 15.825 billion yuan, down 10.97% from the same period last year; net profit of 277 million yuan, down 55.22% from the same period last year; and net profit of 249 million yuan, down 58.32% from the same period last year. The company's Q1 performance was greatly affected by the epidemic, and the Q2 and Q3 performance were in line with expectations.
The performance declined in the first three quarters, and Q3 recovered in a single quarter: outbreaks at home and abroad one after another affected the company's business performance for the whole year, and the equipment business was affected by a series of uncertain factors such as international government factors and operating pressure of Chinese operators, while the optical fiber and cable business faced the passive situation of China Mobile's collection prices falling again. In this context, the company's income in the first three quarters was 15.825 billion yuan (YoY-10.97%), and the net profit returned to its mother was 277 million yuan (YoY-55.22%). In the face of unfavorable factors, the company strives to cultivate the stock of customers and actively expand new business areas. In the operator market, on the one hand, the company strives to increase the domestic 5G market share and strengthen the project operation capacity of the province and high-quality cities, on the other hand, it deeply excavates the customers of large multinational operators to seek new growth points; in the industry network market, the company has achieved a breakthrough in the power generation market for the first time and completed the signing of contracts for a number of rail transit communication system projects such as Hefei and Zhengzhou. In terms of services, the company speeds up the opening of 5G projects and strengthens customer network improvement.
Quarterly point of view: Q1 company is located in Hubei to bring greater pressure on the operation, operating income of 2.91 billion yuan (YoY-40.38%), return to the mother net profit-190 million yuan. Q2 company's gradual increase in orders has stabilized the operation, with a quarterly income of 6.529 billion yuan (YoY- 8.10%) and a net profit of 246 million yuan (YoY-5.76%), which is significantly narrower than that of Q1. Q3 international epidemic gradually improved and 5G order delivery revenue was confirmed, single-quarter performance improved, revenue 6.385 billion yuan (YoY 10.29%), return mother net profit 222 million yuan (YoY 15.61%).
In the second half of 2020, the domestic telecom operation faced the reduction of 5G capital expenditure, the severe political environment at home and abroad led to the increase in raw material procurement and transportation costs, and the company's comprehensive gross profit margin decreased slightly by 1.34pct. In addition, the expense rate increased by 0.96pct during the company period. Among them, the sales / R & D / financial expense rate increased by 0.05pct, 0.50pct and 0.43pct respectively, while the management expense rate decreased slightly by 0.02pct. In the face of declining profitability, the company continues to maintain high R & D investment, demonstrating the company's determination to develop in the long term and enhance its core competitiveness.
From a quarterly point of view, Q3 gross profit margin decreased by 3.36pct compared with the same period last year, expense rate decreased by 3.15pct over the same period last year, other income decreased by 33.26%, net investment income increased by 36.2%, asset impairment loss decreased, and the growth of final income and homed net profit were basically in line with each other.
The performance of the data network plate is excellent, and the company's performance is driven by the beacon fire and the starry sky. Although the third quarter did not separately disclose the network data business income, from the semi-annual report is the company's main source of profit. With the telecom-level information extraction capabilities and massive PB-level big data analysis and processing capabilities, the wholly-owned subsidiary FiberHome Star holds about half of the market share in the field of network monitoring. With the network security and big data product demand picking up, the company's penetration in public security, military, government, railway, power and other downstream areas has gradually increased. In the first half of the year, the net profit of the flaming stars reached 124 million yuan, while the net profit of listed companies was only 56 million yuan, which shows that the flaming stars play a significant role in driving the performance of the company.
Investment advice: the decline in the company's Q2 performance has narrowed significantly, and Q3 has stabilized and recovered. The company's communication system business will benefit from the development of 5G and the data network business will grow greatly. Combined with the results of the three quarterly reports, we downgrade our profit forecast. It is estimated that the company's operating income for 20-22 years will be 238.60 pounds 275.11 billion yuan, respectively, and the net profit returned to its mother will be 605 pounds 8.72 billion dollars, respectively. The EPS will be 0.52 pounds 0.74 pounds, and the corresponding PE will be 51X/35X/27X.
Risk tips: China Telecom optical cable collection prices continue to decline less than expected; 5G base station construction process is lower than expected; operators have greater pressure on capital expenditure; the continued spread of the international epidemic has hindered the company's business development.