I. Overview of events
Recently, the company released 2019 results KuaiBao: revenue 2.72 billion yuan, year-on-year-0.6%, return to the mother net profit-910 million yuan, year-on-year-471%; basic EPS is-0.83 yuan, year-on-year-445.8%.
II. Analysis and judgment
The performance was lower than expected, and the company was dragged down by the oversupply in the LED industry and the sharp decline in prices. In the 19-year performance notice, the company disclosed its mother's net profit of-887 million yuan to-882 million yuan. 19Q4's single-quarter revenue was 750 million yuan, an increase of 89% over the same period last year, and 4.7% month-on-month growth. The net profit of 19Q4 was-190 million yuan, 18Q4 was-250 million yuan, and the loss was narrowed year-on-year, with 19Q3 of-180 million yuan. The sharp decline in performance in 2019 is mainly due to: LED chip 2019 overall overcapacity, product prices fell sharply, the company as a whole to reduce the production and supply of ordinary lighting products, revenue declined slightly; the first three quarters of the overall capacity utilization is low, chip business cumulative losses.
19Q4 product structure optimization + Mini LED starting quantity, chip business operating profit month-on-month improvement since 18Q4, affected by the oversupply of LED, the price of LED chips has continued to decline. The company optimized LED chip product structure and customer structure in 19Q4, capacity utilization rate rebounded compared with the first three quarters, Mini LED volume, chip business operating profit and loss range narrowed month-on-month, gross profit margin increased. The accumulated losses in the first three quarters are relatively large, coupled with the impact of large inventory impairment, the chip business lost a lot of money for the whole year.
Due to the impact of overcapacity in the LED chip industry, the decline in substrate revenue dragged down the performance in 2019 due to the cyclical downward impact of the LED industry, the price of a single substrate dropped significantly, the company strategically controlled the capacity utilization of the substrate business to reduce inventory, and the cost of a single chip increased. As a result, the average gross profit margin and sales volume of the substrate business declined, the total revenue decreased by 37%, and the company fully accounted for 254 million yuan of goodwill formed during the acquisition of the substrate business.
LED chip industry losses, Mini LED is expected to boost industry demand in 2019 LED chip industry industry losses, from the number of days of inventory turnover, the industry has hit bottom. Supply growth is limited. Due to the low price of LED chips, the growth rate of new capacity in the industry is expected to slow sharply to 10% in 2020 compared with the same period last year. Manufacturers will reduce the utilization of mid-and low-end chip capacity, and the industry concentration will further increase. Mini LED is expected to boost industry demand. According to LEDinside, Apple Inc is expected to use Mini LED for new iPad and MacBook products. It is expected that the quantity of MiniLED backlit TVs will increase further. We believe that the LED chip industry has been at the bottom of the cycle, the company's forward-looking layout of Mini LED capacity, with Mini LED backlighting and display demand gradually, performance is expected to improve.
III. Investment suggestions
It is estimated that the annual net profit of homing in 19-20-21 will be-9.1 billion yuan and 1.3X/1.3X/1.2X respectively, and the PB will be 2.3 billion yuan. Reference SW LED industry PB (arithmetic average) is 5 times. Taking into account the recovery of downstream demand has some uncertainty, the first rating, based on the principle of caution, given a "cautious recommendation" rating.
Fourth, risk tips:
1, raw material price fluctuation; 2, downstream demand slows down; 3, new production capacity climbing is less than expected.