Key points of investment
The company released its report for the third quarter of 2017: the company achieved operating income of 136 million yuan in the first three quarters of 2017, a year-on-year decrease of 1.43%; achieved net profit attributable to shareholders of listed companies of 29.012,400 yuan, a year-on-year decrease of 10.40%, corresponding to EPS of 0.20 yuan. The third quarter achieved revenue of 51,9091 million yuan, a year-on-year decrease of 13.53%; net profit attributable to shareholders of listed companies was 9.8764 million yuan, a year-on-year decrease of 40.23%.
Revenue has remained stable, and exchange gains and losses have led to higher expense rates. On a quarterly basis, the company achieved revenue of 3509.83, 4853.42, and 519.091 million yuan respectively in Q1, Q2, and Q3, up 0.71%, 13.84% and -13.53% year-on-year, respectively, and was generally stable. The company achieved a comprehensive gross profit margin of 50.35% in the first three quarters, a slight decline of 0.96 pct. The company's fee rate totaled 30.83%, an increase of 3.91 pct over the same period last year. The main reason was an increase of 3.46 pct in financial expenses due to exchange gains and losses.
The launch of the industrial inkjet printhead project is expected to replace imports in the 10 billion market. The technical barriers to industrial inkjet printheads are extremely high, and the gross margin can reach 70%. Currently, the domestic market is dominated by foreign companies. It is estimated that in 2017-2020, China's industrial inkjet printhead market will grow from 4.8 billion yuan to more than 11 billion yuan, with a compound growth rate of more than 30%. The company has been developing industrial inkjet printheads for many years, and has been well evaluated by foreign customers during trials. In September 2017, the company put into operation the industrial inkjet printhead project in small batches, with an annual production capacity of 10,000. In the future, the company is expected to achieve import substitution in this field and enjoy the blue ocean of the 10 billion dollar market.
Profit forecast and rating: The company invested in small-batch production of industrial inkjet printheads to achieve import substitution, breaking foreign monopolies. Starting in 2018, it is expected that the company's net profit for 2017-2019 would be 0.54/1.10/182 million yuan respectively, and EPS was 0.37/0.76/1.27 yuan respectively, corresponding to PE 51x/25x/15x, maintaining the “increase in holdings” rating.
Risk warning: New product marketing progress is lower than expected.