I. Overview of events
The company announced on October 29, 2020 that the consortium formed by the company and Shenzhen Wisdom City Science and Technology Development Group Co., Ltd. (hereinafter referred to as "Shenzhicheng") won the bid for the first phase of the Pengcheng Yunnao Ⅱ expansion project, with a winning amount of 2.818 billion yuan, and the project was completed before December 31, 2023. The company announced on January 3, 2021 that the company signed a supplementary agreement with Shen Zhicheng, which confirmed that the company would receive a total of 2.497 billion yuan from the project contract; on January 4, 2021, the company announced that the project had been implemented and the company received 2.02 billion yuan for the project.
II. Analysis and judgment
In the second half of last year, the company continued to make efforts in new infrastructure areas and create new growth points. on August 24, 2020, the subsidiary data Technology signed a strategic cooperation framework agreement with China Mobile Limited to build a first-class data center (data technology will build no less than 4000 8kw racks) and a 5G smart park. Expand new infrastructure business represented by data centers. Winning the bid again in the field of new infrastructure will serve as a benchmarking effect. The products purchased this time include equipment, software and services, that is, computing equipment, network equipment, storage equipment, software and other products. The company will get a total of 2.497 billion yuan from the project contract. So far, it has received 2.02 billion yuan (accounting for 82.48% of the company's revenue of 2.449 billion yuan in the first three quarters). It is conducive to the further expansion of the company's new infrastructure business and improve the company's revenue scale and profitability in 2021.
The troika of "optical communication + military industry + new infrastructure" goes hand in hand, and the performance is expected to be improved in 2021. In recent years, the company focuses on optical communications and intelligent access industry, while actively developing the field of military information technology and opening up "new infrastructure" business, forming a trinity development pattern of "optical communication + military industry + new infrastructure". In terms of optical communication business, the company has high-quality and stable customers and obvious competitive advantage in the optical communication market. As the importance of 5G and data center development rises to a new height, 5G base stations and IDC are expected to maintain high construction volume in 2021, bringing new increments to optical cables, optical devices and access equipment, etc., and the company's optical communication business is expected to continue to grow. In the military field, the company's military electronic supporting business orders increased steadily in the first three quarters, while the company announced on December 16, 2020 that the subsidiary specially issued Sanqi defense technology to sign a military procurement framework agreement with special agency customers. the amount of the agreement is about RMB 626 million, and this agreement is expected to further enhance the revenue scale of the company's military business. During the 14th five-year Plan period, the demand for military industry information will grow rapidly, laying a solid foundation for the steady growth of military business performance. The company's Q3 inventory is 3.01 billion yuan (1.94 times that of 1.555 billion at the end of 2019). With the steady delivery of orders in the fourth quarter, inventory will be released, and fourth-quarter results are expected to increase. Looking forward to 2021, the company will benefit from the domestic new infrastructure construction and the 14th five-year Plan, and the troika of "Optical Communications + military Industry + New Infrastructure" will go hand in hand, which is expected to support the company's performance improvement.
III. Investment suggestions
The company takes the optical communication and intelligent access industry as the main body, the customer quality is stable, and the competitive advantage in the optical communication market is obvious. At the same time, the company is actively developing the field of military information and opening up new infrastructure business. Winning the bid for military industry and new infrastructure in the second half of this year will improve the company's revenue scale and profitability in 2021. With the steady delivery of orders in the fourth quarter, the performance will be released. Under the great opportunity of the new infrastructure construction and the 14th five-year Plan, the company will fully enjoy the industry dividend, and the performance is expected to be improved. It is estimated that the homing net profit from 2020 to 2022 will be RMB 1.54 million, RMB 3.93 and 0.67 for EPS, respectively, and the corresponding PE is 50X/20X/14X, respectively. The average PE valuation of the reference optical communication industry in 2020 is 58 times, and the company is given a "recommended" rating for the first time.
Fourth, risk tips:
5G and IDC construction is not as expected; industry competition intensifies; Sino-US trade friction
