In November 2018, the company announced the "absorption and merger of Marvel Acoustics Technology Co., Ltd and related transaction Plan". The company plans to acquire 100% of the shares of Wanmao Acoustics through a non-public offering of shares to all shareholders of Wanmao Acoustics, so as to realize the absorption and merger of Wanmao Acoustics. Recently, the company announced that the "CSRC Administrative license Project Review feedback notice" made a relevant reply, absorption and merger is still in the process of continuous progress. According to the brand share of headphones provided by ZOL Zhongguancun Internet Consumer Center (updated to December 4, 2019), 1MORE currently ranks first with a brand share of 15.5%, while in April 2019, 1MORE's brand share is only 10%, and the brand share of Wanmao Acoustics's own brand products continues to increase.
The TWS headphone market is booming, and the company's business is expected to achieve rapid development. According to data from Counterpoint research institutions, global TWS headphone shipments in the second quarter of 2019 were 27 million, an increase of about 54% compared with 17.5 million in the first quarter of 2019. In the first half of 2019, 44.5 million headphones were shipped, exceeding the whole of 2018. According to the data released by Zhi Research Consulting, the market for TWS headphones will reach US $11.042 billion in 2020, with a compound growth rate of 76.7% from 2017 to 2020. The main customers of Wanmao Acoustics ODM business are XIAOMI and Huawei. As Qualcomm Inc, Hengxuan, Huawei, Loda and other manufacturers continue to launch their own solutions, the connectivity problems of non-Apple Inc TWS headphones can also be well solved. Non-Apple Inc TWS headphones are expected to usher in rapid growth, assuming that the company's "absorption and merger of Wanmao Acoustic Technology Co., Ltd. and related party transaction plan" can be successful. In the future, the ODM business module will continue to benefit from the penetration of Android camp TWS headphones.
Investment suggestion
If we do not consider absorption and merger, we estimate that the company's revenue from 2019 to 2021 will be 966 million yuan, 1.159 billion yuan and 1.333 billion yuan, and the corresponding EPS will be 0.08,0.12yuan and 0.14yuan respectively.
If the absorption merger is taken into account, according to the report (draft) of Gongda Electro Acoustic absorption and merger Wanmao Acoustics Technology Co., Ltd and related transactions, if the absorption merger is completed in 2020, the performance compensation period will be three complete fiscal years from 2020 to 2022. After deducting non-recurring profits and losses, the net profit belonging to the owner of the parent company is not less than 220 million yuan, 285 million yuan and 357 million yuan respectively. Assuming that the absorption and merger can be completed in 2020, we estimate that the total net profit of electroacoustics from 2020 to 2022 will be about 262.4736 million yuan, 334.5625 million yuan and 411.5188 million yuan.
After the completion of the absorption and merger, the share capital of the company is about 924.91 million shares, and it is estimated that the EPS of the company in 2020-2022 will be 0.28,0.36,0.44 yuan respectively. Referring to the average PE (TTM) of Shenwan Electronics Manufacturing Index in the past five years, the average value is about 50 times, ranging from 22 times to 100 times. Considering the growth of the company's business, we give the company 60 times PE in 2020, with a target price of 16.80 yuan, covering for the first time and giving a "buy" rating.
Risk hint
Absorb the risk of merger failure: if the company fails to absorb and merge Magic Acoustics, the performance will be lower than expected.
The risk that the company's revenue will fall short of expectations as a result of increased competition in the TWS headphone market.
Macroeconomic decline, systemic risk. The company is in the electronic manufacturing industry, which is positively related to the macro-economy. The intensification of trade friction between China and the United States may have a negative impact on the company's industrial chain, and then affect the company's income growth.