Main points of investment

Event: the company released its annual report for 2020, with an annual operating income of 3.47 billion yuan, an increase of 63.0% over the same period last year, a gross profit margin of 16.3%, a decrease of 1.9% over the same period last year, a further loss of 47.625 million yuan in net profit belonging to the parent company, a narrowing loss, and a net profit loss of 0.1 yuan per share. In the fourth quarter, the company realized operating income of 970 million yuan, an increase of 28.0% over the same period last year, and a net profit loss of 130 million yuan belonging to shareholders of listed companies. The profit distribution plan for 2020 is that there will be no profit distribution, no capital accumulation fund to increase equity and other forms of distribution.

The growth rate of revenue contributed to the laptop tablet, and the lower-than-expected sales of some products affected the smooth mass production of the notebook computer shell products that the company matched for domestic customers in 2020, contributing to new revenue increments. The sales of tablets and matching smart pens increased significantly under the influence of the epidemic, bringing considerable revenue for the company. From a quarterly point of view, Q2 and Q3 revenue growth rates were 107.3% and 139.3% respectively compared with the same period last year, Q4 decreased significantly due to the impact of A customer iPhone 12 mini sales not as expected, while supply chain and international friction led to a brief decline in sales of notebook shell products for major domestic customers, so Q4 growth decreased month-on-month. The decline in gross profit margin for the whole year is also affected by Q4. Due to the early investment of a large number of technology, manpower, equipment and other resources, the decline in production line capacity utilization has greatly increased unit cost. Q4 single-quarter gross profit margin is only 3.8%.

The initial investment failed to achieve the expected sales volume, and the increase in interest expenses together led to continued losses: lower-than-expected sales of iPhone 12 mini, a brief decline in orders for laptops from October to November from major domestic customers, and delayed mass production of products such as new personal computers and e-cigarettes resulted in a loss of 130 million yuan in the fourth quarter. At the same time, the foreign exchange loss was 39.28 million yuan in 2020, the management fees related to new share incentives were 35.22 million yuan, and the expansion of bank financing resulted in financial expenses of 65.6 million yuan, which jointly led to continued losses in last year's performance.

The structure of consumer electronics business is optimized, and multiple layouts enrich performance growth points: this year, the company's revenue in the consumer electronics sector is composed of notebook computers (including all-in-one computers), tablets and mobile phones, which each account for 3%, reducing the proportion of smart phones to optimize the structure and avoiding the operational risks brought about by focusing on a single variety. In 2021, with the output of the new iMac of A customers and the efforts of domestic big customers in the notebook field, the proportion of computer categories will further increase, and it will also become a new revenue increment of the company. The company takes precision metal application as a starting point and precision plastic as a supplement, opens up upstream links such as moulds and cutting tools, drives the layout of terminal industries such as notebook computers, wearable products, e-cigarettes, medical devices and automobiles, and enriches performance growth points.

Investment advice: we predict that the company's earnings per share from 2021 to 2023 will be 0.43 yuan, 0.57 yuan and 0.64 yuan respectively. The return on equity is 9.3%, 11.0% and 10.9%, respectively. In view of the fact that the company was affected by less than expected sales of some products in 2020, the larger early investment adversely affected the operation and lost money for two consecutive years, so it downgraded its rating to overweight-B.

Risk tips: the end product shipments of core customers are not as expected; the promotion of e-cigarettes and other new products is not as expected; the tight supply chain affects the sales volume of end products.