Event

Recently, the company has granted reserved restricted stock to the incentive target and made it public.

Our analysis and judgment

Incentives are fully granted, and enterprise vitality continues to emerge. After the company awarded 5658500 restricted shares at the price of 6.44 yuan per share to the incentive subjects on May 7, the company awarded some 128.33 million shares to 58 incentive objects at the price of 8.08 yuan per share on November 25. The performance assessment conditions for both awards are that the ROE from 2022 to 2024 is not less than 5 per cent, 5.5 per cent and 6 per cent respectively, and the compound growth rate of net profit is not less than 15 per cent. Assuming that according to the 2.133 billion net asset level of 2020Q3, the non-return net profit deducted in 2021 is at least 107 million yuan to meet the unlocking condition. In addition, the company needs to amortize expenses of about 12.0462 million, 23.8502 million, 18.329 million and 9.238 million respectively in 2020-2023. We believe that although the granting of equity incentives to the backbone of the company poses pressure on the improvement of corporate profits in the short term, it will help to optimize the corporate governance structure and stimulate business vitality in the long run.

Reliable PCB service underpinning, communication planning business gradually. According to the company announcement, the development trend of high reliable PCB business is good, with monthly orders exceeding 100 million yuan since March. As of November, related orders in 2020 have increased by more than 25% compared with the same period last year, and the backing effect is very obvious.

The company's 5G business is mainly network communication planning and design. At present, the 5G market is in a period of accelerated development, the industry investment scale is enlarged, the investment cycle is longer than 4G, the number of equipment required for network coverage will be more, and the company will usher in better development opportunities. The company is carrying out 5G network core product research and development and industrialization promotion, 5G network supporting product innovation and sales. At present, we have completed the research and development of 5G small base station prototype and carried out joint testing with industry customers, focusing on the customized product demand of operators and tower customers, forming differentiated 5G supporting products such as antenna feeder and beautified antenna. The company itself is in the forefront of the independent third-party communication planning and design institute, the business undertaking capacity has been strengthened, and the future development will continue to improve.

The rail transit business continues to expand, and the continued growth of communications in the far East is certain. Far East Communications won the bid for Zhengzhou and Hangzhou rail transit communication system procurement projects in the fourth quarter, with a total amount of 436 million, accounting for about 19% of its revenue in 2019. Among them, the Hangzhou project has realized the application of far East Communication's own 800MHz TETRA digital trunking system in the field of rail transit for the first time, and we believe that the follow-up promotion of independent products is expected to greatly improve the profitability of the company, further consolidate the company's leading position in the domestic subway communication system market, and set a good demonstration effect on the layout of other market segments in the future. In addition, benefiting from the development of the 5G industry, the constant temperature crystal oscillator products are growing rapidly, and the far East Communications can continue to grow rapidly.

The refinancing project has been approved, and the landing of the fund-raising project opens the future development space of the company.

The company raised no more than 1.6 billion yuan in this non-public offering, which is intended to be used in the next generation mobile communication industrialization project, 5G high-end communication oscillator research and development and industrialization project, ubiquitous intelligent public safety private network equipment research and development and industrialization and other projects. According to the company's development planning and positioning of the 5G industry, low-band 5G special antenna and feeder arrays, communication technology services, industry-oriented systems and terminals will become key investment fields. the investment in the field of intelligent public safety private network is expected to consolidate its position in the field of public safety. We believe that with the gradual landing of the fund-raising project, the future development space of the company will be opened again.

Backed by China Netcom, there is a lot of room for asset securitization to improve. The company is positioned as the only platform for the capital operation of China Light and Power Netcom. According to the overall development concept of China Electric Power and China Light and Power Netcom, the improvement of asset securitization rate is the general trend. The successful implementation of equity incentive will also create conditions for the industrial development and overall capital operation of CLP Netcom. The profit volume of China Light and Power Netcom is dozens of times that of the company in 2019, and the company is expected to benefit greatly with the improvement of asset securitization in this sector in the future.

Investment suggestion

It is estimated that the return net profit of the company from 2020 to 2022 is 88 million, 180 million and 291 million respectively, and the EPS is 0.15,0.31 and 0.51 yuan, respectively. The current stock price corresponds to 106.9x, 52.1x and 32.3x.

With reference to comparable companies in the industry, the company's valuation advantage is not obvious, but the company will focus on a small number of core businesses in the future, and its profitability is expected to continue to improve. In addition, as the listing platform of China Light and Power Netcom, the company is expected to benefit from the improvement of asset securitization of the sub-group. In view of this, we still maintain the company's "recommended" rating.

Risk hint

The risk that the delivery progress of the product is not as expected, and the risk that the capital operation is not as expected.