Competition for traditional MIM products has intensified, and smart wearable and folding screen phones have ushered in new opportunities for development. On October 20, Jingyan released its third quarterly report. The company's revenue for the first three quarters was 1,114 billion yuan (YoY 8.14%), net profit of 86.9206 million yuan (YoY -15.14%), net profit of 66.833 million yuan (YoY -41.70%) after deduction of net profit of 66.833 million yuan (YoY -41.70%). The year-on-year decline in net profit was mainly due to: 1) the slowdown in downstream demand due to the COVID-19 pandemic; 2) competition in the MIM industry intensified, and the company's gross margin fell 10.17pct to 28.81% year-on-year in the first three quarters.
With the rise of smart wearable products such as smart watches and TWS headsets, folding screens have become an important innovation direction for smartphones. We are optimistic about the development opportunities of the company's MIM business in smart wearables, folding screens and other markets. We expect EPS to be 1.32/2.18/2.86 yuan in 20-22, with a target price of 71.86 yuan, maintaining the purchase rating.
Orders were delivered centrally in the third quarter, and the company's production capacity was limited and production efficiency did not meet expectations. As a result, net profit fell 506 million yuan year on year, up 4.76% year on year; net profit of the mother was 505.1228 million yuan, down 5.52% from the previous year; after deduction, the net profit of the mother was 33.688 million yuan, a decrease of 48.33% over the previous year.
3Q20 gross profit margin was 27.81%, down 0.82 pct month-on-month and 9.16pct year-on-year, mainly due to: 1) MIM technology was gradually recognized by the market, industry competition intensified, and the strength of some traditional MIM product competitors gradually increased; 2) the epidemic caused delays in orders in the first half of the year. A large number of orders were delivered centrally in the third quarter, and the company experienced temporary insufficient production capacity and production efficiency fell short of expectations. In terms of cost rate, Jingyan's 3Q20 sales+management+finance expenses ratio was 10.83%, down 1.19 pct from the previous month and an increase of 2.83 pct over the previous year.
The iPhone 12 is expected to start the “fruit fan” 5G switching trend, and folding screens will become an important innovation direction for smartphones. The company's MIM products are widely used in consumer electronics products such as smartphones and wearable devices. End customers include well-known domestic and foreign consumer electronics brands such as Apple, OPPO, VIVO, and Samsung. Since September 2020, Apple has successively launched new products such as the Apple Watch S6 and iPhone 12 series phones. We believe that the launch of the 5G iPhone is expected to be the starting point of the “fruit powder” 5G switching cycle. While the global share of iPhone increases, it is expected to drive sales growth of Apple's ecological products. Furthermore, since 2019, manufacturers such as Samsung and Huawei have released folding screen phones one after another. IHS predicts that shipments of folding screen phones will increase from 1.5 million units in 2019 to 50 million units in 2024, and MIM products have broad application space.
The company is actively expanding automotive and medical businesses, striving to achieve collaborative and complementary development in various fields and gradually expand the application of the company's products to the automotive manufacturing field. According to the company's 2019 annual performance briefing, the company's products have now been applied to well-known domestic and foreign automobile brands such as Great Wall, Honda, and SAIC-GM. In 2019, the company also successfully developed high-quality automobile customers such as Bosch Unicom, Kongsberg, Hofu, etc., and passed the supplier verification of world-renowned auto parts manufacturer Schaeffler. We believe that based on its core competitiveness and brand influence in the MIM field, the company is expected to further expand fields such as automobile manufacturing and medical devices, and at the same time develop new businesses such as transmission and cooling to achieve collaborative and complementary development in various fields.
The prospects for wearable and folding screens are promising. MIM products have broad application space. Maintaining the purchase rating. Considering the intensification of traditional MIM competition, we lowered the net profit attributable to the mother in 20-22 from $2.07/295/364 million to $153/252/331 million. Considering that demand recovery is still highly uncertain in the context of the global spread of COVID-19 in 2020, we refer to Wind's unanimous forecast of 32.98 times the average PE value of comparable companies in 2021, and gave Jingyan Technology 33 times the expected PE in 2021. The target price was 71.86 yuan (previous value: 95.14 yuan), maintaining the purchase rating.
Risk warning: The MIM process penetration rate falls short of expectations; new iPhone shipments fall short of the expected risk.