[investment points]
The company is a leading manufacturer of broadband communication terminals in China, mainly using ODM mode to provide network communication products manufacturing services for ZTE Corporation, SAGEM Telecom, Shanghai Bell, FiberHome and other domestic and foreign communication equipment. At present, the company's main products include DSL (ADSL, VDSL) terminal series, optical access (EPON, GPON) terminal series, wireless (Wi-Fi), mobile terminal series.
Affected by COVID-19 's epidemic in the first half of 2020, the time of using the network at home was prolonged, and the requirements for network speed and stability were greatly improved. The company's Wi-Fi wireless router sales increased by more than 20% over the same period last year. Ting achieved a net profit of 180 million yuan in the first half of 2020, an increase of 5.25% over the same period last year. Among them, the net profit in the second quarter of 2020 was 129 million yuan, an increase of 50.61% over the same period last year, and the single-quarter profit reached a record high.
Gigabit network upgrading, Wi-Fi6 technology to promote product upgrading, the epidemic catalyzed the construction of foreign networks to establish a foothold for short-term performance. IDC released the Quarterly tracking report of China's WLAN Market in the third quarter of 2019 on March 4, 2020, showing that the overall size of the WLAN market is still in a steady growth trend, in which Wi-Fi 6 began to debut from some mainstream manufacturers in the third quarter of last year, and the first Wi-Fi 6 products made their debut with sales of US $4.7 million in the third quarter of last year.
IDC predicts that Wi-Fi 6 will shine in the wireless market in 2020, with the size of the Chinese market alone approaching US $200 million. In terms of technology, the company began to store Wi-Fi 6 technology in advance since 2018, and increased the deployment of Wi-Fi 6 products and project cultivation in 2019, with preparatory projects accounting for more than 50% of the total number of R & D projects. In terms of business, the company's ODM model to help domestic Ruijie, D-LINK, foreign SAGEM Telecom and other major customers OEM, will benefit to a large extent from the WLAN equipment market concentrated to the head of the dividend.
The construction of macro base stations initially covers key cities, and the rise of demand for small base stations will provide medium-term profit growth points. According to the 2020 China 5G Economic report of China Information and Communication Institute, at present, operators have begun to actively lay out 5G network construction, and 5G construction will follow the development path of "pre-if macro stations covering key cities, medium-term if Hong stations covering all urban and rural areas, and later millimeter wavelet stations covering hot spots". According to the latest forecast data from Dell'Oro, the global market for small base stations will reach at least $25 billion (about 170.55 billion yuan) in the next five years. The company's small base station products are complete, at present, the company Qualcomm Inc millimeter wave small base station has basically completed product research and development, to achieve industry leadership. At the same time, the company introduces multi-programs to develop synchronously, communicates domestic technical solutions, and establishes strategic cooperation programs with relevant enterprises to speed up the research and development of sub_6G small base stations and ensure product progress.
[investment points]
The Internet of everything module is the first to enter the communication module to provide long-term performance support for entering the era of the Internet of things in the future. Wireless communication module is located in the "connection layer" of the Internet of things architecture, which is an important bridge for the connection of the Internet of things. The first condition of the Internet of things is that the equipment can access the Internet to realize the exchange of information, and the wireless module is the key link to realize the equipment networking, which plays a role in opening up the perception layer and the network layer. basically, every device connected to the Internet of things is loaded with 1-2 wireless modules, and the wireless module will be the first industry to benefit from the Internet of things market. According to the statistics of China Industrial Information Network, the number of global Internet of things connections will reach 5.2 billion in 2015, 12.6 billion in 2020, and is expected to reach 25.2 billion in 2025. The number of global Internet of things connections has increased fourfold in 10 years, and the number of Internet of things connections in China has grown from less than 1 billion in 2015 to more than 7 billion in 2020. The main incremental markets are cellular and non-cellular LPWAN. According to the forecast of Zhiyan Consulting, the global cellular communication module market will be close to 30 billion yuan by 2022, with a compound annual growth rate of 15%. The company's module business builds business plates with its own brand, ODM and EMS mode, focuses on major customers and industry applications, uses factory production advantages to apply communication modules to its own products, and develops diversified 4G, 5G and intelligent module products.
[investment advice]
As a leading manufacturer of broadband communication terminals in China, the company strives to carry out diversified development, with measures such as iterative product upgrading of communication terminal technology, successful introduction of EMS to accelerate breakthroughs, mobile communications focus on considerable development of products, risk prevention and control upgrading of the supply chain, continuous management system reform and other measures to expand market business and extend the industrial chain, with the promotion of gigabit network and the data increment of interconnection in 5G era. Benefiting from the upgrading of Wi-Fi 6 and the high demeanor of the optical module, the performance is expected to continue to grow. At the same time, with the expansion of 5G small base stations and the start of newly entering the communication module industry, it is expected to open a new profit growth point in the future. It is estimated that the annual operating income of the company in 20-21-22 will reach 85.69 million yuan, 95.68 billion yuan, 10.744 billion yuan respectively, the net profit of returning to the mother will be 370 million yuan, 451 million yuan, and the EPS will be 0.48, 0.58, 0.69, respectively, and the corresponding PE will be twice as much as 25-20-17.
Considering that the company, as a large domestic broadband communication terminal manufacturer, can enjoy the dividend of 5G investment and construction in the next three years, and the investment in 5G small base stations and communication module projects will also provide the company with sustained profit growth in the future, we are expected to maintain an average profit growth rate of 20% in the next three years, which is lower than the industry average valuation. We are cautious about the company's future performance and give it a "holdings increase" rating.