Shenzhen Huaqiang = distribution (main business) + industrial Internet B2B (proposed spin-off listing) + commercial real estate and other (cash cow). The company was founded in 1994 and has a history of 27 years in the electronics industry. At present, it has more than 60 holding and shareholding enterprises and nearly 2000 employees. It has a long history and a large scale. In terms of income composition in 2020, the authorized distribution business income of electronic components is 14.67 billion, with YoY+11.80%, accounting for 89.83%, which is the main contribution business; based on big data's electronic industry chain, B2B integrated service business (industrial Internet business) has an income of 710 million and YoY+35.74%, accounts for 4.33%, which is in the stage of rapid growth. Commercial real estate and other business income 950 million, YoY+33.96%, accounted for 5.83%, is the company's cash cow business.
Big data industry as the center of the business model to form positive feedback, building a long-term moat of the company.
Big data, the industry that has been precipitated for a long time, has different advantages from its peers in inventory management, account management, and price management of the company. For the upstream chip factory, big data helps the original factory inventory management, product promotion and customer maintenance, and for downstream customers, big data helps them to optimize delivery time, optimize procurement and provide some product suggestions. With the gradual increase of the amount of data accumulated by the company in the industry, the competitive advantage brought by big data is highlighted, and the business model centered on big data gradually forms positive feedback, building a long-term moat of the company.
Distribution business: revenue continues to grow, benefiting from the semiconductor boom in 2021, revenue is expected to hit an all-time high.
The company's distribution revenue reached 14.7 billion in 2020, and the gross profit margin of YoY+11.8%, was 6.7%, down 0.8pct from the same period last year. Against the backdrop of the upward semiconductor business cycle in 2021, the increase in out-of-stock prices of terminals gives distributors better bargaining power to optimize accounting periods and expand revenue, which is expected to reach an all-time high of 19.1 billion in 2021. Year-on-year growth is expected to reach 30 per cent.
Industrial Internet B2B business: revenue from industrial Internet B2B business is expected to grow by 43% in 2021, benefiting from the improvement of prosperity and the proposed spin-off listing.
Industrial Internet B2B business is still in a period of rapid development. In 2020, the company's industrial Internet B2B business revenue was 708 million yuan, and YoY+35.7%, gross profit margin was 24.8%. The company issued an announcement on March 10, 2021, "Shenzhen Huaqiang Industrial Co., Ltd. on the spin-off of its subsidiary, Shenzhen Huaqiang Electronic Network Group Co., Ltd., listed on gem (revised draft). It is proposed to split Huaqiang Electronic Network Group for listing. If the spin-off is completed, it will help to enhance the brand awareness and social influence of Huaqiang Electronic Network Group. Optimize the management system and operation mechanism of Huaqiang Electronic Network Group and improve the management level. We expect the industry Internet B2B business to be affected by the improvement of the industry boom and the proposed spin-off listing in 2021, and revenue is expected to increase by 43% compared with the same period last year.
Profit Forecast and rating:
Taking into account the rapid development of the company's industrial Internet B2B business and the proposed spin-off listing, we choose the segment valuation method. The PE-Band, valuation range of the distribution and other business reference companies except the proposed spin-off business is between 19 and 25xPE in the past three years. Considering that the distribution business benefits from the boom this year and is expected to achieve the highest growth rate in three years, we conservatively give 22xPE and estimate 752 million homing net profit in 2021. Corresponding market capitalization 16.55 billion Industrial Internet B2B business to bid Guolian shares, we give 60xPE, it is estimated that 2021 will achieve 121 million of home net profit, corresponding to a market capitalization of 7.29 billion.
According to the above valuation method, we estimate that the reasonable market capitalization of the company is 23.84 billion yuan, corresponding to the share price of 22.79 yuan, compared with the closing price of 15.95 on May 11, there is 43% room for "overweight" rating.
Risk hint: Sino-US trade has intensified, the epidemic has intensified, and the progress of spin-off and listing is not as expected.