Key points of investment
The electronic transformation is already effective, and there is plenty of momentum for civil-military integration
In 2016, the company changed its controlling shareholder to Xinyu Haoyue and gradually moved into military electronics.
From 2017 to 2018, the company acquired shares in Changsha Shaoguang, Wolters Electronics, Jiuqiang Xundun, and China Electronics Huaxing, and the military goods business began to expand. In 2020, the company participated in the Wuhan Navigation Institute and Honglinwei, taking advantage of the collaborative advantages in the military industry to increase the commercial and high-frequency communication of Beidou-3. While laying out the military business, the company continues to deeply cultivate the development of GPUs, Beidou navigation, and high-frequency communications in the civilian market, and there is plenty of growth momentum.
The three military and civilian markets of Beidou will explode, and companies will enter accurately to accelerate business development
GPS positioning systems are currently the most widely used, and their systems have been upgraded several times. Reviewing the GPS industry, from the first batch of GPS satellites BLOCK IIA to the subsequent BLOCK IIR, BLOCK IIR-M, BLOCK IIF, and GPS III/IIIF, every satellite upgrade is accompanied by the upgrade of terrestrial terminal products, which in turn brought about a boom cycle in the industry. China's Beidou-3 positioning system will complete the last satellite networking in the middle of this year, and will be commercialized globally for the first time in 2020. The Wuhan Navigation Institute was led by Academician Liu Jingnan, an authority in the Beidou field. He took the lead in drafting, revising, and refining the Beidou standards. Its products such as Beidou chips and positioning terminals became recommended products by the China Satellite Navigation System Administration Office. Hangjin Technology gradually increased its shares in the Wuhan Navigation Institute to 27.66%, and the company will work with the Navigation Institute to promote the military and civilian development of the three Beidou products.
The company increased its 5G communication high-frequency business and added another highlight
5G commercial and high-frequency communication trends have brought a new development cycle to the communications industry, and the company has formed a good business collaboration layout in the field of communications. In 2019, the company set up Wolkow RF to lay out research and development of upstream high-frequency copper-coated plates; in 2020, the company announced that it would invest 45% of Honglinwei's shares to strengthen the R&D capabilities of base station antennas and millimeter-wave RF devices; Wuhan Navigation Institute controls the entire industry layout from chip design to operation services; Wolkow Electronics owns the SMT process and chip packaging test line to provide production capacity guarantee for the company's electronic products. Overall, the company entered the electronics industry through military business, and the future layout of the civil communications business will be the driving force for the company's growth.
Investment advice
We expect the company to achieve revenue of 3,999 million yuan, 4,551 million yuan, and 5.191 billion yuan in 2020-2022, with year-on-year increases of 5.96%, 13.82% and 14.06% respectively; net profit attributable to shareholders of the parent company was 422 million yuan, 519 million yuan and 717 million yuan, up 37.68%, 22.90% and 38.23% respectively; EPS was 0.61 yuan, 0.75 yuan and 1.04 yuan respectively, corresponding PE was 39X, 32X and 23X. Maintain the “increase in holdings” rating over the next six months.
Main risks
(1) Development of next-generation GPU products fell short of expectations; (2) 5G civilian business development fell short of expectations.
