Performance profile: North American key customer assembly business promoted revenue growth of more than 100% year-on-year, and profit margins declined in the short term under the increase in assembly share. The company's 21Q1 revenue is 19.9 billion yuan (+ 132%), gross profit is 6.4% (- 6ppts), net profit is 800 million (+ 23%), net profit is 4.1% (- 3.6ppts).
The volume of structural components of major customers in North America is about to be released, and it has entered a period of rapid growth under deep cooperation. At present, the company's major customer business in North America is mainly in flat panels and watch products, of which the annual income related to the flat panel has increased by three times in the past 21 years, reaching 40 billion RMB, and the assembly of the whole machine may account for 30% of the customers. at the same time, the matching metal structure has begun to put in quantity, and the glass cover is also expected to be imported; in addition, the glass front cover is also expected to get a share of the ceramic parts or further expansion of watch products, which will boost the profitability of related business.
Android customer demand picks up, the chip supply gap will narrow in the second quarter, and consumer electronic components will resume growth. Demand for consumer electronics declined in the first quarter due to shortage of chips, and chip supply is expected to improve in the second quarter; at the same time, with the launch of many new phones in the second quarter, the overall mobile phone demand and the share of high-end phones increased, the company's structural parts business is expected to grow, and the overall gross profit margin and profitability increase at the same time. According to our estimates, the company's revenue in the Android computer and computer business is about RMB 350-40 billion. At present, the share of metal and plastic is stable, and the future increment lies in the increase in the share of Xiaomi assembly business, Samsung glass back cover and all Android brand glass front cover.
Emerging business blossoms at many points, and e-cigarette products may make important progress. The company's emerging intelligent products, such as drones, floor-sweeping robots, game hardware, etc., maintain high growth kinetic energy; heated and non-combustible ODM electronic products have been mass-produced, while cotton core atomizers and smoke bombs have been shipped in the second quarter, and ceramic core atomizer products are about to be mass-produced. The related products are the strategic investment business of the company, and the production capacity of 10 million levels has been planned to cope with the rapid growth demand of the industry. In addition, the automotive intelligent system part is expected to benefit from the recovery of the industry, in addition to supplying its own BYD brand cars, but also gradually producing goods to external customers.
Investment advice: we believe that the decline in the company's profit margin in the first quarter is mainly due to assembly prior to the release of supporting structures, and it is expected that Android and North American major customer structures will increase the matching rate in the second quarter, resulting in an improvement in profitability. At the same time, the company's electronic atomization products entered mass production in the second quarter, and the company's related technology accumulation and customer demand will be verified, which is expected to drive the valuation center. Taking into account the normal demand for masks and the impact of out of stock of chips, we lowered the company's 21-year return net profit of 10% to 4.6 billion, maintaining the forecast of 6.7 billion for 22 years. We value our 2021 net profit at 22 times PE, lowering our target price by 7.5 per cent to HK $53.9 and maintaining a "prudent overweight" rating.
Risk hint: structural parts price competition, the utilization rate of new capacity is lower than expected, and the profit margin of assembly business is low.