Main points of investment
Investment logic: acquisition of MEMSIC landing, multi-extension development, Meixin is the only company with vehicle scale accelerometer and geomagnetic sensor chip; downstream of the industry, such as small spacing LED, urban landscape lighting, automotive LED lighting and other segments of industry demand is strong, bringing the company chip demand high growth; the company's R & D investment continues to increase, in the field of epitaxial chip access to 12 core special authorization.
The downstream market of LED is highly prosperous. At present, the penetration rate of LED lighting has expanded to 40%, and it is expected that the market will further expand in the future; the compound growth rate of small spacing LED has been maintained at about 50% in recent years, and there is still room for growth; automobile and landscape lighting is still an important downstream market for LED; the rise of mini LED and micro LED is an important area for the future development of LED. Mini LED already has production process, micro LED is the focus of most manufacturers' research and development, and it is expected that there is huge room for development in emerging fields in the future.
Update the production equipment and keep the gross profit margin stable under the price reduction strategy. In 2017, Huacan reduced the price of LED products, but Huacan took measures to adjust the production line to eliminate the old equipment in Wuhan base, which greatly improved production efficiency and reduced management costs and labor costs. As a result, Huacan's gross profit margin remained stable without being affected by the price reduction. LED chip products, Blu-ray chip gross profit margin of 32.3%, year-on-year-2.39pp. green chip gross profit margin of 29.4%, year-on-year + 5.5pp, the company's Blu-ray gross profit margin remained stable, green gross profit margin significantly increased, exceeding market expectations.
Merger and acquisition of Meixin to develop new areas of MEMS. In the first half of 2018, the company achieved operating income of 1.62 billion yuan, an increase of 36.0% over the same period last year, and a net profit of 310 million yuan, an increase of 45.0% over the same period last year. On March 27, 2018, Huacan completed its acquisition of Meixin. Meixin realized partial consolidation in the second quarter, contributing 27 million yuan in net profit. Meixin is the only domestic company with gauge-level accelerometer and geomagnetic sensor chips. its automotive sensors have entered GM, Mazda and other international automobile manufacturers, and have long been supplied in large quantities with cooperative manufacturers. This acquisition will enable the company to further expand its business areas in the integrated circuit industry, help the company achieve diversified and epitaxial development of related business, and then strengthen the company's strategic layout in application fields such as consumer electronics and automotive electronics.
Profit forecast and rating: according to our estimates, the revenue growth of Huacan Optoelectronics 2018, 2019, and 2020 will be 47.12%, 25.00% and 20.71%, respectively, and the compound growth rate of operating income in the next three years will be 30.5%. The compound growth rate of return net profit will be 40.0%, and the share price before that will be 14, 11, 9 times PE. The downstream market of the company's industry is booming, and the company has successfully acquired Meixin to open up new areas of MEMS this year, giving the company 20 times PE in 18 years, corresponding to a share price of 15.2RMB, covering for the first time and giving a "buy" rating.
Risk hint: LED industry boom may not meet expectations; sapphire substrate business growth may not meet expectations; Meixin performance may not meet expectations.