Benefiting from 4G/5G construction dividends, main business revenue grew rapidly
The company announced revenue of 1,285 billion yuan in the first half of 2019, an increase of 42.40% over the previous year; Guimu's net profit was 41.25 million yuan, an increase of 318.13% over the previous year, slightly higher than the median forecast, in line with expectations. Non-recurring profit and loss was $63.817,600, which mainly included government subsidies, financial management income, and the cancellation and return of accrued asset impairment preparations. 2019Q2's single-quarter revenue was 696 million yuan, up 54.57% year on year and 18.11% month on month. Revenue continued to improve. The company's product structure continues to be optimized, mainly driven by revenue growth from radio frequency products in its main business, benefiting from 4G/5G simultaneous construction dividends.
Deeply focus on the main telecommunications radio frequency business, product structure optimization, and profitability improvement
The company is currently focusing on the main business of base station filters. Communications business revenue was 1,078 million yuan, an increase of 64.24% over the previous year. The share of revenue rose to 83.88% from 73.29% in 2018. Product structure optimization was obvious; revenue from smart terminal structural components was 148 million yuan, down 16.49% from the previous year; revenue from auto parts and other parts was 509 million yuan, down 14.15% from the previous year. The gross margin of RF products increased significantly, from 11.95% in 2018 to 21.51%, up 5.17 pct from the same period last year. It mainly benefits from the reduction in fixed cost amortization for individual products due to the increase in the revenue share of 5G products and the increase in the scale of revenue. The gross margin of smart terminal structural components increased to 20.55% from 16.49% in 2018. On the cost side, 2019Q2 sales expenses, management expenses, R&D expenses, and financial expenses all accounted for a decrease in revenue compared to 2019Q1.
Transforming high R&D investment into product competitiveness and enhancing customer development
The company has always attached importance to R&D. In the first half of the year, R&D investment reached 103 million yuan, accounting for 7.99% of revenue, which was effectively converted into product competitiveness. Currently, 5G filter production capacity is in the leading position in the industry. The company continues to consolidate its share in Huawei and has made breakthroughs in the revenue structure of Ericsson, Nokia, and CommScope. As industry demand rises, the company's 5G media filters are expected to be shipped in batches, bringing greater performance flexibility.
Maintaining the “buy” rating in view of the continuous improvement of the company's filter business
The company has been a gold core supplier to Huawei for many years, with the highest product strength and reputation. Mass production of 5G dielectric waveguide filters is imminent; the company has also made continuous breakthroughs in the supply share of Ericsson and Nokia. Based on mass production expectations for 5G media filters, the company's net profit for 2019/2020/2021 is estimated to be 2.54/365/509 million yuan respectively, and the corresponding PE is 49.6/34.5/24.8 times, maintaining the “buy” rating.
Risk warning
5G demand fell short of expectations; orders for mass production of dielectric waveguide filters fell short of expectations; industry price competition intensified.
