Event: on July 13, the company issued a semi-annual performance forecast for 2021. It is expected that the net profit for the first half of 2021 will be 62 million yuan to 72 million yuan, an increase of 35 million yuan to 45 million yuan over the same period last year, and an increase of 128.22% to 165.03% over the same period last year. In the second quarter, the company achieved a net profit of 47 million yuan to 57 million yuan, a month-on-month increase of 201.55% and 266.32%, exceeding market expectations.
The development of overseas markets has achieved remarkable results and profitability has been significantly improved. The company continues to strengthen overseas market development efforts and achieved remarkable results: by providing high-quality products and services with market competitiveness, the price and gross profit level of some regional markets increased significantly compared with the previous year. According to the company announcement, the company is the only Chinese supplier in the Telstra system equipment procurement list of Telstra. In the future, the company will continue to develop in high-end demand markets such as Australia, New Zealand, Finland, Canada, the United Kingdom and South Pacific Island countries, Russia, Africa and other regions. The company has rich overseas customer resources and many years of experience in overseas markets, and overseas revenue is expected to continue to grow at a high speed.
Fixed increase project landing, optical module technology iteration, capacity expansion double speed up. On July 8, the company's application for a non-public offering of shares was approved by the China Securities Regulatory Commission, proposing a non-public offering of no more than 73.75 million new shares and raising 900 million yuan. The investment of the funds raised mainly includes:
1) expand the production capacity of optical modules. It is planned to invest 380 million yuan, accounting for 42% of the funds raised. The project is expected to expand 1.694 million high-speed optical modules by the fifth year (the company shipped a total of 4 million optical modules in 2020), which is expected to contribute 657 million yuan in income and 74.73 million yuan in net profit.
On the one hand, the project will expand the production capacity of 25G and 100G optical modules, and on the other hand, it will make up the production capacity of 200G and 400G high-speed optical modules.
2) strengthen the research and development capability of optical module technology. It is planned to invest 140 million yuan, accounting for 15.5% of the funds raised. The research center focuses on 800G and coherent optical modules. compared with the traditional optical module technology, 200G and 400G coherent optical modules have longer transmission distance and belong to the new technology path, which is the next generation optical communication technology. 800G high-speed optical module high-end products belong to the further upgrade of the company's existing optical module technology. The project will further consolidate the company's technological advantages in the field of optical modules and enhance the landing capability of the company's technology from the laboratory to the factory.
3) expand to the downstream of base station antennas and radio frequency devices. Launch AAU, RRU, BBU, integrated base station products for 4G and CU+DU, RRU, EU, integrated base station products for 5G. The project plans to invest 210 million yuan, accounting for 23% of the funds raised. The project is expected to begin to produce products in the third year, and to form an annual production capacity of 3200 base stations and supporting products by the sixth year, with an estimated contribution income of 326 million yuan and a net profit of 53.28 million yuan.
The digital communication market is booming, and it is the right time to add the optical module. As 5G enters the commercial stage, the telecommunications network continues to upgrade, and the data center expands, the global optical module market is steadily expanding. According to a report released by market research firm Yole, the global optical module market reached about US $7.7 billion in 2019 and is expected to grow to about US $17.7 billion by 2025, with a compound annual growth rate of 15%, of which the market size of digital optical modules is US $12.1 billion, with an annual compound growth rate of 20%. The telecom optical module market is worth US $5.6 billion, with a compound annual growth rate of about 7%.
We believe that the company will benefit from the high prosperity of the optical module market, relying on the advantages of customer resources and large-scale mass production capacity, is expected to achieve rapid growth.
Investment suggestion: in the base station sector, the company extends from antennas and RF devices to downstream AAU, RRU, integrated base stations and other categories, while actively expanding overseas, is expected to significantly improve the gross profit margin level of the base station plate. In the optical module plate, the company continues to expand its production capacity, while strengthening the R & D capacity of related modules and 800G modules, the sales scale is expected to increase significantly, and gradually enhance its influence in the high-end market of optical modules. We raise the company's revenue forecast for 2021-2023 to 2.507 billion yuan and net profit forecast to 1.09 billion yuan. In the case of the company's fixed increase and full issue, the company will increase its share capital by 73.75 million shares. After considering the effect of fixed increment and dilution, the EPS is 0.27 prime 0.33 prime 0.47. Considering the medium-and long-term growth of the company, the prosperity of the optical module industry continues to rise, and a certain valuation premium is given to 60 times PE in 2022, corresponding to the target price of 19.8 yuan, maintaining the "Buy-A" investment rating.
Risk hints: the construction of 5G base stations is not as expected, the landing time of fixed increase projects is not as expected, and the competition in the optical module market is intensified.