\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) 562 Glarun Technology Co.Ltd(600562) )
A-share defense radar leader: Glarun Technology Co.Ltd(600562) is a listed company controlled by the 14th Research Institute of CETC. In 2020, it completed the business integration of defense radar system and industrial software of its subsidiaries, forming a main business pattern composed of radar equipment and related systems, industrial software and digital solutions. The company’s defense radar business is in a leading position in the A-share market.
One belt, one road, one more route and more than 20 countries and regions, has won the recognition of China’s foreign customers. Due to different pricing mechanisms, the profit level of military trade products for international customers is higher than that of China. Affected by the epidemic in recent years, the delivery of military trade radar business is relatively slow. This situation is expected to recover after the impact of the epidemic weakens, driving the improvement of the profitability of the radar sector. With the improvement of China’s equipment level and international influence, China’s military trade products are more and more favored by international customers, which is expected to provide more market opportunities for the company’s military trade radar business.
Industrial software business benefits from digital transformation and ushers in a period of rapid development: according to the digital transformation and development needs of industrial enterprises, the company creates a rich industrial software product portfolio around the main line of the whole product life cycle, provides users with intelligent enterprise overall solutions, and applies them to all factor digitization and whole process management in the process of industrial product design, manufacturing and guarantee, It is used in industrial enterprise project implementation, quality and supply chain management and control, business decision support and other fields. The net profit CAGR of Guorui Xinwei, a subsidiary engaged in industrial software business, reached 56.37% in 20172020. In the future, with the digital and independent transformation of China’s industry, the rapid development is expected to continue.
The reform of state-owned enterprises is expected to drive the further improvement of the company’s profitability: CETC has fully implemented the decision and deployment of the “three-year action of state-owned enterprise reform”, formulated the implementation plan of the group’s three-year action of reform, and strive to effectively enhance the ability of the group in all aspects. All Chinese listed companies under CETC responded positively and pursued the improvement of business quality. For example, Sun Create Electronics Co.Ltd(600990) , Chengdu Spaceon Electronics Co.Ltd(002935) and others plan to implement equity incentive, and Phenix Optical Company Limited(600071) plans to integrate the high-quality assets of some scientific research institutes through asset restructuring. We believe that Glarun Technology Co.Ltd(600562) is also qualified to implement reform and further improve profitability.
Profit forecast, valuation and rating: with the improvement of China’s equipment level and international influence, China’s military trade products are more and more favored by international customers. After the impact of the epidemic weakens, the company’s military trade business is expected to improve significantly. At present, China’s manufacturing industry is in a critical stage of accelerating the transformation of new and old drivers. Autonomous industrial software has effectively supported the digital transformation of many important industries such as national defense, and is expected to usher in major development opportunities. In the process of state-owned enterprise reform, with reference to the situation of other listed companies of China Electronics Technology Group, the operating efficiency of the company is expected to be further improved. We expect that the net profit of the company from 2021 to 2023 is expected to reach 532 million yuan, 646 million yuan and 783 million yuan, with EPS of 0.43, 0.52 and 0.63 yuan respectively. The current share price corresponds to PE of 38x, 31x and 26x respectively. Combined with the relative valuation results, the company was given a “buy” rating for the first time.
Risk tips: market competition risk, international situation change risk, covid-19 epidemic situation continuous evolution risk.
