Leaguer (Shenzhen) Microelectronics Corp(688589) (688589)
Key investment points
Recommendation logic: 1) in terms of policy, the State Grid South Grid unified bidding to promote the renewal and iteration of China’s HPLC market, replace the PLC chip every 6 years, and gradually realize localization. Meanwhile, during the 14th Five Year Plan period, the State Grid plans to invest 2.2 trillion yuan, the South Grid plans to invest 670 billion yuan, and the total investment of the two networks is nearly 3 trillion yuan, which is expected to significantly promote the development of smart grid. 2) The company participates in the formulation of power line communication standards. In the market of about 100 million electricity meters every year, the market share is nearly 5%. The company is expected to improve its market share by virtue of its own technical advantages. 3) Downstream railways, photovoltaic, smart home and smart street lamps are blooming at many points. Taking the field of high-speed rail energy efficiency as an example, the company is in a leading position and participated in the construction of more than 10 new lines in 2021.
The 14th five year plan policy boosted demand, and the State Grid bidding was steadily promoted. In the post epidemic era, the company’s supply has returned to normal, the bidding process has been promoted normally, and the coverage of the unified bidding market in the power grid has been expanding. The 14th five year plan policy aims at a total investment of nearly 3 trillion yuan in power grid construction, and the policy guides the rapid transformation of China’s smart grid. We estimate that the current market scale of smart meters is about 100 million every year, and the current market share of the company is nearly 5%. Smart chip micro occupies about 70% of the PLC chip market. With the improvement of the company’s product competitiveness, the company is expected to seize the market of industry leading enterprises in the future.
PLC communication complements the wired Internet of things connection, and multi-point flowering in multiple downstream application scenarios. In terms of high-speed rail energy efficiency management: Leaguer (Shenzhen) Microelectronics Corp(688589) won the bid for multiple high-speed rail power line communication comprehensive energy efficiency management projects, participated in more than 10 new high-speed rail power line communication projects in 2021, and was in a leading position in this subdivision field. Smart home: according to IDC data, the growth rate of smart appliances will exceed 30% in 2021. Huawei took the lead in proposing the whole house intelligent overall solution of PLC IOT, aiming to achieve the sales volume of 5 million sets in five years. The company cooperates deeply with a.o. Smith to build a whole house smart home solution. In the future, it is expected to follow the promotion of Huawei’s whole house smart solution and jointly explore the PLC IOT market. Smart street lamps: as an important part of the strategic deployment of “new infrastructure” and “digital economy”, the company has developed intellectual property rights, built a moat, and written the national standard for power line communication of smart street lamps. It is expected to integrate and supplement the smart city lighting terminal chip market in the future. Photovoltaic inverter control: the company contributes to “carbon neutralization” and continues to layout the field of intelligent photovoltaic inverter control. The company has cooperated with Shenzhen Kstar Science & Technology Co.Ltd(002518) to build intelligent photovoltaic inverter control applications for new energy photovoltaic power stations.
Profit forecast and investment suggestions. It is estimated that EPS from 2021 to 2023 will be 0.48 yuan, 1.17 yuan and 2.19 yuan respectively, and the compound growth rate of net profit attributable to parent company in the next three years will be 98.9%. In view of the continuous improvement of power grid investment under the 14th five year plan, we give the company a valuation of 66 times in 2022, corresponding to the target price of 77.22 yuan, and give a “buy” rating for the first time.
Risk warning: the policy promotion is less than the expected risk; Insufficient supply of upstream chips and rising risks of raw materials; The development of downstream application scenarios is less than expected, and there is a risk of repeated covid-19 epidemic.
