Report summary:
Dongxin Peace is the world's leading provider of smart card products and related system integration and solutions. It is a leading SIM manufacturer, and is expected to fully benefit from the development of cellular IoT led by NB-IoT.
The company's revenue and net profit have maintained a steady growth trend, and gross margin and net interest rates have also been rising steadily.
Thanks to the company's continuous deepening of the three smart card application fields of communications, banking and social security, and increasing overseas market expansion efforts, the company achieved operating income of 1,439 billion yuan and net profit of 64.32 million yuan to the mother in 2015, up 11.84% and 11.74% respectively from 2014. Gross margin and net margin were 25.18% and 4.88% respectively, up 1 percentage point and 0.32 percentage points over the previous year. In the first half of 2016, although the domestic 4G card exchange peak had passed and the growth in IC card issuance stabilized, the company maintained a growth trend in revenue and net profit by increasing overseas expansion efforts. We believe that IoT and 5G card issuers are expected to support the company's performance to maintain a good growth trend in the future.
NB-IoT will drive the cellular Internet of Things into a large-scale development stage, driving growth in demand for SIM cards.
As the first SIM card manufacturer in China to develop secure access solutions based on NB-IoT technology, the company has a clear first-mover advantage. It is expected to seize the opportunity for the rapid development of cellular IoT, especially NB-IoT. On the one hand, it will gain a large market share in the development of cellular IoT SIM and eSIM cards, and increase operating share revenue through the operation of an IoT eSIM user contract management platform; on the other hand, it is expected to enter the IoT communication module market and enter the IoT security market based on its technical strength in information security management and operation to share IoT development dividends .
The company is determined to increase efforts to promote the “Health Insurance Fund MPSP Management Platform” nationwide to broaden revenue sources.
The company is one of the main producers of social security cards and PSAM cards. By the end of 2015, it had provided more than 150 million social security cards to 24 provinces and cities. The company's MPSP platform has been successfully piloted and has a clear first-mover advantage. It is estimated that after the stable operation of the project, the average annual revenue will reach 250 million yuan, and the project's internal rate of return is 16.93%. The platform is expected to become a new revenue growth point for the company.
Company profit forecasts and investment ratings. We expect the company's earnings per share in 2016-2018 to be $0.22, $0.29, and $0.38, respectively, and the corresponding PE is 69 times, 53 times, and 40 times, respectively. Considering that the company is the first SIM card manufacturer in China to develop secure access solutions based on NB-IoT technology, the first-mover advantage is obvious, and future development is worth looking forward to, maintaining the “recommended” rating.
