Through the merger and acquisition of Bovat, the company moved from traditional precision box manufacturing to R&D and manufacturing of 5G mobile communication base station antennas and core RF devices. It is a leading integrated enterprise with 4G/5G RF antennas and filters that are scarce in China. At present, the company's products have entered the supply systems of mainstream communication equipment vendors such as ZTE and Ericsson, and have become the main supplier. At the same time, it is expanding into overseas markets such as Japan and the US, and is expected to become a new leader in RF devices.
The acquisition of Bovat entered the field of 5G communication RF devices to seize 5G development opportunities. After completing the acquisition of Bovat in 2018, the company changed from a traditional elevator cabinet company to a 5G base station antenna RF provider. The company has formed an integrated layout covering 4G/5G base station antennas and RF filters. Customers cover China and Japan, and successfully developed the US market this year. At the same time, it has become a core supplier of RF devices for mainstream global communication equipment companies such as ZTE and Ericsson.
With the new form of antennas in the 5G era, base station antenna+filter integration companies have more advantages. 5G networks have entered the large-scale construction stage, and the introduction of new technologies such as massive MIMO has allowed the wireless sector to continue to increase its share in the 5G era. The development of antennas and filters in the direction of miniaturization and integration has become the largest investment in the wireless sector. As an integrated manufacturer of scarce antenna+dielectric filters, the company has obvious advantages. It has strong 4G/5G antenna R&D and manufacturing capabilities. At the same time, it has further strengthened the existing layout in ceramic filter products, and is expected to seize the opportunity of intergenerational change in the integration of AFU antenna filters for RF products.
With new products+new markets, the company is expected to take advantage of 5G and grow into a leading radio frequency antenna for base stations in China. The company has a first-mover advantage in new RF products such as 5G antennas and 5G ceramic dielectric filters. Combined with entering the Ericsson supply chain and entering the US market, it is expected to open up new incremental market space, achieve rapid development of its main telecommunications business, and grow into a new leader in RF.
Investment advice: The company relies on ZTE and is expected to become Ericsson's main supplier in the future. It is an integrated supplier of antennas and filters that are scarce upstream of 5G. We expect net profit for 2019-2021 to be around 145 million yuan, 241 million yuan and 296 million yuan respectively. Corresponding to the 2019 - 2021 PE was 41.3 X, 24.8X and 20.2X respectively. Given a valuation 30 times that of 2020, we gave a target price of 43.00 yuan for 12 months, covering it for the first time and giving it a “Highly Recommended - A” rating.
Risk warning: 5G construction progress falls short of expectations, new customer expansion falls short of expectations, gross margin of new products is falling too fast
