Main points of investment
Event: on October 12, Zhongshi Science and Technology released a forecast of third-quarter results: 2020Q1-Q3, the company expects to achieve a net profit of RMB1.26-141 million, an increase of 65%-85% over the same period last year, of which 2020Q3 is expected to achieve a net profit of RMB 0.66-75 million, up 55% from a year earlier.
Core customers continue to break through, and the company's performance is growing steadily: Zhongshi Science and Technology, as the world's leading heat dissipation material leader, has become an important supplier of mobile phone brands at home and abroad, and new projects and new products of major customers at home and abroad continue to be introduced in the first half of the year. Demand continues to increase steadily, and there is also a good breakthrough in the supply share of core customers in the first half of the year. At the same time, the performance contribution performance of newly introduced brands such as Huawei, Samsung and VIVO is gradually emerging.
The wave of 5G replacement helps the company's performance break out: 2020 is the first year of 5G. Samsung, Huawei, XIAOMI, VIVO and other manufacturers have released more than 10 5G handsets. With the improvement of 5G technology, it is expected that the number of 5G terminals released by mobile phone factories will still increase in the future. Apple Inc, the current stock of iPhone on the market is as high as 950 million, and 68% of them have been in use for more than two years. Apple Inc released the SE series of mobile phones in the first half of 2020, superimposed and followed by the launch of 5G models, and the trend of iPhone mini-replacement is expected to continue. We believe that Zhongshi Technology, as an important supplier of Apple Inc, Huawei and other brands, will fully benefit from the 5G replacement dividend.
Lock in market demand, technology forward-looking layout to create a long-term leader: 5G mobile phones put forward new requirements for heat dissipation technology, the current more mature way of heat dissipation is heat pipe, graphite sheet, soaking plate (VC), XIAOMI, Samsung, Huawei and other manufacturers have begun to layout graphite + VC combined heat dissipation scheme. In 2019, the company acquired a 51% stake in Kaiweidi, breaking through the combined heat dissipation solutions of graphite + VC and graphite + heat pipe; in mid-2020, it raised 831 million yuan for the development of 5G efficient cooling modules, mainly 5G smart phones, servers, 5G base stations and other construction, which will be able to meet the cooling upgrade needs of 5G mobile phones and the high-power cooling needs of 5G base stations.
Earnings forecast and investment rating: we expect the company's operating income from 2020 to 2022 to be 985 million yuan, 1.293 billion yuan and 1.603 billion yuan respectively, and earnings per share to be 0.68,0.97 yuan and 1.23 yuan respectively, with a corresponding PE valuation of 50.28mm 35.08max 27.79 times, maintaining the "buy" rating.
Risk hint: the release of terminal demand is lower than expected; the macro economy continues to decline.