Description of the event:
On January 15, the company issued an advance performance increase announcement for 2017. It is expected that the net profit returned to the mother in 2017 will be 32.222 million yuan to 41,4284 million yuan, an increase of 5% to 35% over the previous year.
The company increased its sales efforts in 2017. Sales revenue increased 40% compared to the same period last year. Net profit was affected by non-recurring profit and loss, which was lower than the growth rate of sales revenue.
Incident reviews:
In '17, the company focused on research and development, and was restructured in terms of patents, teams, channels, etc., and '18 will be a year in which the company's growth rate shifts. We emphasize once again that liquid metals are expected to explode, and that the consumer electronics sector will take the lead in breakthroughs.
Middle frame: The advent of 5G will bring about changes in the structure of mobile phones: middle frame+non-metallic back case will become mainstream. Compared with CNC, powder metallurgy, MIM, etc., liquid metals have advanced rapidly. Due to the relatively short process of the net molding+CNC/laser process, the cost of ownership and performance has been reduced by more than 30% compared to the stainless steel middle frame (we estimate its price is around 280 yuan)! It is estimated that the liquid metal middle frame will be used early next year and promoted as black technology. Similar to the ceramic back cover, it will enhance the brand image.
Small parts: The glass back cover cannot be drilled like aluminum alloy and cannot be used as a support bracket for cameras and fingerprints, so a metal holder is needed. Liquid metal has an advantage in the cost of these small parts. Huawei and Xiaomi have already adopted them in small batches, large customers have already sent samples, and module manufacturers are following suit.
The company has been developing on liquid metal for a long time, and has made small metal parts and back covers. In the past, since there were no good customers or equipment technology, there was no cost advantage compared to aluminum alloy. After Professor Li, the company's actual controller, took control of the Hong Kong Liquid Metal Company and participated in Liquidmetal in 2016, he comprehensively laid out patents, channels, and popularity to lay a solid foundation for industrialization.
Process capacity has been greatly improved, and equipment can be produced and sold by oneself, becoming an industry leader. At the same time, they have made every effort to build the best team in the industry, with members from top universities in China and the Chinese Academy of Sciences. At the same time, the company's non-public fund-raising project was approved to expand liquid metal production. We are optimistic that the company will become a leader in this new materials field in the future.
Currently, the company's main business, aluminum-magnesium alloys, has broad application prospects in fields such as automobile lightweighting and medical degradable materials, and is optimistic about its steady growth.
There is no time to delay coping with global warming trends, and lightweight automobiles have become the focus of all countries. We are optimistic that the use of magnesium-aluminum alloys in automobiles will continue to increase. In-depth cooperation with Yunhai Metal is expected to reduce procurement costs in the future. Medical biodegradable materials are widely used in the bone implant market, and there is plenty of room for market growth.
Investment Ratings and Valuations
The company's R&D and financial expenses were high in '17. After the company's fixed increase of 650 million yuan is completed, it is expected that financial expenses will be drastically reduced in '18. In terms of additional profit, domestic customers of liquid metal in 2018 are conservatively estimated to have contributed 340 million yuan; the magnesium alloy car lightweight project, through the cooperation of magnesium-aluminum alloy supplier Yunhai Metal, saved 1,000 yuan/ton in factory raw material transportation and waste recycling, saving 5% of costs, and contributing 670 million profits. Not counting that major customers already had profits of around 200 million yuan, the estimated net profit for 17-19 was 0.4, 2.0, and 280 million yuan. Excluding share capital increase: corresponding EPS is 0.09, 0.49, 0.69 yuan, corresponding PE is 97x, 18x, 13x; considering share capital increase: corresponding EPS is 0.09, 0.44, 0.61 yuan, and corresponding PE is 97x, 20x, 14x times. The margin of safety is high, maintaining the “Highly Recommended” rating!
Risk warning
The risk of a drastic change in the structure of a smartphone; the risk that the penetration rate of liquid metal materials does not meet expectations.