Performance situation: In the first quarter of 2021, the company achieved operating income of 123 million yuan, an increase of 71.22% over the previous year, net profit of 14.2434 million yuan, an increase of 126.52% over the previous year, after deducting net profit of 136.076 million yuan from non-return mothers, an increase of 173.37% over the previous year.
Deeply involved in the model and small-batch board markets, and gradually transformed into a one-stop service provider. The company started with a PCB model. The initial multi-year development focused mainly on the prototype and small-batch board market. In order to break the ceiling of the company's development and seek new growth space, the company began preparing an Xinfeng factory in 2014, seeking transformation into a “one-stop service provider from prototype to mass production”. The model is mainly used in the research, testing, development and pilot stage of the customer's new product. Therefore, it has the characteristics of “multiple varieties, small batches, high level, and short delivery”. Through model development, the company can understand the customer's cutting-edge design and requirements earlier and match the corresponding manufacturing process in a timely manner. When the product is successfully developed and tested and defined by the market, if the company has batch board production capacity, it can be seamlessly connected to provide customers with batch board supply.
Of course, the industry characteristics of the model determine that the supplier needs to have strong flexible production management capabilities, a quick response speed to customer demand, and an efficient and fast product distribution system, while the batch board has high requirements for the stability and yield of production line operation, and the consistency of product performance. The requirements for the management team are almost completely different, so it is not easy to transform from a model supplier to a one-stop service provider. In 2020, the company's role transformation into the industry has made small gains. In 2020, the revenue share of the company model, small batch board, and large batch board respectively was 30.13% , 36.82%, and 33.05%. Among them, the revenue corresponding to high-volume orders from customers importing the original model and small-batch board accounts for 70% of the total high-volume board revenue. In the future, as new production capacity continues to be released, the revenue share of batch boards will further increase, and the company's growth space will be further opened up.
Positioning in the field of security and industrial control, high downstream prosperity lays the company's growth potential. The company's core downstream application fields are security and industrial control. In 2020, the two accounted for 26.86% and 17.04% of the company's revenue, respectively. In particular, the security industry began accepting orders in this field at the beginning of its establishment. After years of accumulation, it has formed stable cooperation with domestic security leaders such as Dahua and Hikang to supply surveillance cameras, thermal imagers, face recognition systems, digital video recorders, etc. Currently, Dahua and Hikang are the customers that account for the highest revenue share of the company, accounting for 12.37% and 10.47% respectively in 2020. Judging from industry chain research, the security sector was prosperous in the second quarter. Orders from core customers were quite full, and the high level of prosperity is expected to continue until the second half of the year. In the long run, according to MarketsAndMarkets forecasts, the global security solutions market size is expected to grow from US$257.9 billion in 2019 to US$397.6 billion in 2024, with a compound annual increase of 9%. Not to mention that after experiencing this round of COVID-19, global government, enterprise and consumer safety awareness has further increased, and security demand will also soar.
Overall, continued high prosperity in core downstream application areas will lay the company's future growth potential.
Raising capital to expand production opens up room for growth. Since the Qifeng plant was put into operation, the company's annualized production capacity has continued to rise in recent years. As of 2020, the total annualized production capacity of the Shenzhen plant and the Xinfeng plant was about 400,000 square meters/year, and the capacity utilization rate was close to 90%. This year, through a breakthrough in bottleneck production capacity, the production capacity of the Xinfeng plant still has room to rise further. Furthermore, the company's fund-raising project will help the company's Xinfeng plant add 480,000 square meters of annual production capacity, including 300,000 square meters of mass production capacity and 180,000 square meters of HDI model production capacity, with strong downstream core demand and original customers Background of extending from sample orders to batch board orders Next, the company's production capacity continues to increase, which is expected to directly drive continued growth in revenue and performance.
Profit forecasting and investment ratings: First coverage, giving buying ratings. The company is one of the few PCB companies in China with security as its core downstream sector. The current high boom in the security industry is expected to be one of the core driving forces for the company's performance growth. Furthermore, the company's growth goals from model to batch boards are continuously being realized. We expect the company's net profit from 2021-2023 to be 82 million, 112 million, and 149 million yuan respectively. The current stock price corresponding to PE is 28.67, 21.05 and 15.83 times, respectively. It is covered for the first time and given a purchase rating.
Risk warning: (1) the prosperity of the security industry is declining; (2) industry competition is intensifying due to the expansion of domestic PCB production capacity; (3) the company's production capacity climbing progress falls short of expectations.