Hengtong Optic-Electric Co.Ltd(600487) (600487)
Conclusions and recommendations:
Hengtong Optic-Electric Co.Ltd(600487) is one of China’s leading comprehensive cable manufacturers with complete industrial chain. Its main business covers two industries: optical communication and power cable. It can provide customers with system solutions in both optical communication and power cable fields. The company has the comprehensive ability of integrating “design, R & D, manufacturing, sales and service”, and is committed to becoming the world’s leading comprehensive solution provider of communication network and energy interconnection through the layout of global industry and marketing network.
The company benefited from the release of demand for power cables from offshore wind power and UHV construction, and acquired Huawei’s marine layout marine communication network construction business. At the same time, the prosperity of the optical fiber and cable industry ushered in an inflection point, and the company’s performance is expected to achieve rapid growth and maintain the “buy” rating.
The marine business grew rapidly and the performance improved significantly: the company has rich product lines, and its business is mainly divided into communication network business, energy interconnection business and marine business. Benefiting from the rapid development of offshore wind power construction, the company’s offshore power communication and system integration business revenue has increased rapidly in recent years, and the product structure has been continuously improved. In the first three quarters of 2021, the company’s revenue was 29.812 billion yuan, a year-on-year increase of 17.54%, and its net profit was 1.316 billion yuan, a year-on-year increase of 50.56%. Compared with the growth of revenue and net profit in 2020 (revenue yoy + 1.97% and net profit yoy-22.05%), the company’s performance has improved significantly.
Under the background of “double carbon”, the installed capacity of offshore wind power is rapidly increased, opening up the space for future growth: the 14th five year plan proposes the orderly development of offshore wind power. The International Wind Energy Council predicts that the new installed capacity of offshore wind power in China will reach 7.5GW in 2021, more than doubling year-on-year. Under the policy requirements of China’s carbon peak and carbon neutralization, Guangdong, Jiangsu, Shandong, Zhejiang and other places have issued offshore wind power construction plans to speed up the construction of offshore wind power installed capacity. The company has formed a complete industrial chain of offshore wind farm operation from submarine cable R & D and manufacturing, transportation, rock socketed piling, integrated piling, fan installation, submarine cable laying to wind farm operation and maintenance. In the context of the rapid development of offshore wind power, the company has the advantages of industrial chain layout and is expected to benefit fully.
In October 2021, China Mobile disclosed the results of centralized procurement of ordinary optical cables from 2021 to 2022. The centralized procurement volume was 143.2 million core km, an increase of 20% over last year’s 119.2 million core km. The average price of centralized procurement was 64.49 yuan / core km, an increase of more than 50% over 2020’s average price of 40.90 yuan, exceeding market expectations. The continuous growth of China’s traffic is expected to push the demand for optical fiber and optical cable into a new business cycle, improve the relationship between supply and demand, and usher in an inflection point in the industry. The company is a leading enterprise of optical fiber and optical cable in China, which is expected to benefit from the recovery of industry prosperity and predictable performance flexibility.
Profit forecast: it is estimated that the company will realize net profits of RMB 1.563 billion, RMB 2.513 billion and RMB 3.331 billion from 2021 to 2023, with a year-on-year increase of 47.16%, 60.83% and 32.57% respectively, and EPS of RMB 0.66, 1.06 and 1.41 respectively. At present, the corresponding PE of A-share price is 24 / 15 / 11 times, giving a “buy” rating.
Risk tips: 1. The development of marine business is not as expected; 2. The risk of intensified market competition; 3. The impact of the epidemic on markets outside China;
