Event

The company plans to invest 192 million yuan to acquire 100% stake in Japanese pioneer micro through its Kefu Holdings, and not more than 60 million yuan to acquire 10% 20% stake in Shanghai Core Stone.

Brief comment

First, weak downstream demand and cost-side impact on 19-year performance the company forecasts revenue of 11.77 billion yuan in 19 years, a slight decrease of 2.86% over the same period last year, and net profit of 29.78 million yuan, down 78.81% from the same period last year. Among them, the revenue of 19Q4 in the single quarter was 2.448 billion yuan, down 26.9% from the same period last year and 28.0% from the previous year; the net profit was-127 million yuan, while that of 18Q4 was-19 million yuan in the same period. In 19 years, the overall downstream demand of the electronics industry was weak, benefiting from the promotion of 5G, cloud computing, Internet of things and other segments, the company's revenue remained robust, while the profit side was affected by the decline in the market price of electronic components. And significant increases in financial costs (higher financing costs / exchange rate changes), credit and inventory provision impairment and other drag, have a greater impact.

Second, the prosperity of the industry has been gradually restored, and the company has ushered in positive changes in many aspects. The main business of the company is market distribution. Subsidiary Hua Shanglong has joined Chuangtai through the acquisition of authorized distributors to enter the 5G and cloud service market. Its customers cover domestic Internet and communications giants such as BAT and China Mobile Limited, and have the agency rights of domestic and foreign giants such as MediaTek, Hynix, Groupon, Zhaoyi Innovation, Optics Technology, Lixun Precision, etc. And continue to break through to the original manufacturers such as Intel/ADI/ and Toshiba to seize the Gaojing demeanor product track and high-quality customer resources. Among them, storage-related products account for about 30%, 40% of the total revenue, and touch display accounts for about 20%, 30%.

The company actively integrates product lines, concentrates resources, and increases investment in superior product lines in emerging growth areas such as 5G and cloud computing. Coupled with the gradual restoration of the prosperity of the electronics industry, the fundamentals are ushering in positive changes in the short and medium term. Including: (1) at present, electronic components are in the upward stage at the bottom of the boom, and look forward to the signs of a rebound in the prices of some electronic components in 2020. (2) with the acceleration of 5G infrastructure, the online economy spawned by the epidemic has a strong demand for servers, storage and master control, and the rising price trend of storage products is relatively clear. (3) in terms of financial expenses, it is proposed to reduce the cost of capital by means of bank loans, equity refinancing and direct overseas low-interest financing by means of state-owned strategic investors.

Third, acquire Japanese pioneer micro into Shanghai core stone, extend the company to the upstream semiconductor link and cooperate deeply with Zhang Yuan and GTSGI, etc., plan to use 192 million yuan to acquire 100% stake in pioneer micro technology (MTC), a subsidiary of Japanese pioneer group, and no more than 60 million yuan to acquire 10% equity interest in shanghai core stone technology. In the future, we will find a suitable city Luodi new company. Produce silicon-based and silicon carbide-based analog / power chips. We believe that this will accelerate the company's transformation into a technical service provider, combine its strong channel capabilities, realize the layout of semiconductor chips from distribution to the upstream, and strengthen the one-stop service capability of technical solutions in the chip field. Pioneer Micro is the semiconductor laboratory of Vanguard Group in Japan, specializing in optoelectronic integrated circuits, optical sensors, display-driven IC, vehicle IC, MEMS mirrors, and providing MBE and wafer foundry services. Shanghai core stone is mainly engaged in power Schottky diodes, and is developing new types of power devices such as FRD, VDMOS, silicon carbide SBD/MOS and so on. The company is expected to achieve the whole process of analog / power device design / manufacturing / sales, and collaborate with the downstream of the distribution business and customers.

Fourth, the company is actively transforming into a technical service provider, and its medium-and long-term development route is clear. at present, the company's business is mainly electronic components distribution and intelligent controller, creating an Internet platform for the electronic information industry. The distribution business accounts for more than 98% of the revenue, and the company has successively acquired Huashang Dragon (passive components / touch display / electronic devices), Haisi, Chuangtai Technology and Yihai Nengda to expand and increase the share of the distribution business. Among them, through Chuangtai Technology cut into the 5G, cloud service quality track, won the processor chip, storage and main control and other front-line manufacturers, downstream customers include domestic Internet and communications giants. With the acceleration of 5G infrastructure and the gradual penetration of cloud storage / cloud computing, the company has better growth opportunities in the future. On the other hand, the company is committed to the layout of upstream semiconductor chips, through the acquisition of Japanese pioneer micro technology (18 years revenue of 340 million yuan, net profit of 10 million yuan) to achieve the optoelectronic IC/ sensor / display driver / vehicle IC and other silicon-based devices layout, and provide MBE and wafer foundry services Through the participation of Shanghai core stone to achieve power semiconductor layout, core stone is currently dominated by Schottky diodes, gradually developing high-end products such as FRD, MOS/IGBT and silicon carbide. The company is expected to transform from market distribution to technical service providers, opening up upstream devices, mid-stream manufacturing and downstream sales. China is the world's largest low area of electronic terminal manufacturing and consumption, but the overall localization rate of upstream chips is less than 10%, and the alternative space is huge. The company's development thinking is clear, is expected to enjoy the industry and localization dividends, to achieve the coordinated development of chip and distribution business.

Fifth, cover for the first time and give a rating of "increasing holdings".

Without considering the situation of Pioneer micro-merger table, it is estimated that the revenue from 2020-2022 will be 14 billion yuan / 18.2 billion yuan / 22 billion yuan, and the net profit of homing will be 120 million yuan / 160 million yuan / 200 million yuan, corresponding to EPS 0.11 yuan / 0.15 yuan / 200 million yuan, corresponding to PE 0.11 yuan / 0.15 yuan / 0.19 yuan, the company's development plan is clear, the long-term growth path is clear, taking into account the industry average valuation, coverage for the first time, given the "increased holdings" rating.

Risk hints: global trade frictions, macroeconomic fluctuations and policy changes restrain downstream consumer demand; M & An integration and downstream customer expansion fall short of expectations; performance fluctuations caused by capacity climbing and yield problems; cost increases caused by early investment in the layout of new products.