\u3000\u3 Shengda Resources Co.Ltd(000603) 678 Fujian Torch Electron Technology Co.Ltd(603678) )
Event: the company released its annual report for 2021. In 2021, the company realized operating revenue (RMB 4.734 billion, + 29.48%), net profit attributable to the parent company (RMB 956 million, + 56.83%), net profit attributable to the parent company after deduction (RMB 949 million, + 61.88%), and gross profit margin (35.52%, + 3.67pcts).
Key investment points:
Increase production and efficiency and optimize the superposition structure to promote the rise of gross profit margin
In 2021, the company realized operating revenue (RMB 4.734 billion, + 29.48%), net profit attributable to the parent company (RMB 956 million, + 56.83%), net profit attributable to the parent company after deduction (RMB 949 million, + 61.88%) and gross profit margin (35.52%, + 3.67pcts). In the fourth quarter of 2021, the single quarter performance declined, realizing operating revenue (RMB 1137 million, – 3.76%) and net profit attributable to the parent company (RMB 174 million, – 5.45%). Benefiting from the rapid growth of downstream market demand such as military electronics, 5g communication, new energy and emerging industries, and the continuous promotion of domestic substitution, the company’s annual revenue continued to grow. At the same time, the company expanded production and efficiency, optimized product structure, significantly increased the shipment of high value-added products, and improved the gross profit margin. Based on the component industry, the company’s self-produced products show diversified development, and won the 32nd place in the top 100 list of economic indicators of China’s electronic component enterprises in 2021. At present, the company has laid out three strategic sectors of “components, international trade and new materials”, built two manufacturing bases in Quanzhou and Guangzhou, and three operation centers in Shanghai, Beijing and Shenzhen.
① the component sector achieved revenue (1.523 billion yuan, + 43.01%) and gross profit margin (78.02%, + 7.49 PCTs) Fujian Torch Electron Technology Co.Ltd(603678) deep cultivation of ceramic capacitors for many years, with mature production technology. At the same time, it also has a series of products such as tantalum capacitors and supercapacitors, which are widely used in high-end fields such as aviation, aerospace, shipbuilding and communication, electric power, rail transit, new energy and so on. During the reporting period, the company adjusted some production capacity to focus on high-specification and high value-added products, and the gross profit margin increased. We believe that under the strategy of the continuous development of China’s military informatization, the number of informatization equipment and the value of unit equipment are expected to be further improved. As the basic component of informatization equipment, the demand for capacitors will maintain a high level and promote the thickening of the company’s performance.
② the trading sector achieved continuous growth in revenue (3.062 billion yuan, + 23.86%) and a slight decrease in gross profit margin (12.92%, -1.02 PCTs). In recent years, the company has increased cooperation with international well-known brands, actively explore new product lines and emerging markets, promote brands by using e-commerce platforms, seize the development opportunities of emerging markets such as the Internet of things, 5g and new energy vehicles, and quickly penetrate market segments. According to the data of the Ministry of industry and information technology, the number of 5g base stations in China will strive to increase from about 1425000 to more than 2 million by the end of 2022, with an increase of 40.25%; In the middle of 2021, the sales of Shanxi Guoxin Energy Corporation Limited(600617) vehicles reached 352100, with a year-on-year increase of 1.6 times, ranking first in the world for seven consecutive years. The products sold by the company on a commission basis are indispensable basic components in the circuit. We believe that the high prosperity of the downstream will continue to drive the growth of upstream demand.
③ the new material sector is mainly undertaken by Liya company. Liya new material achieved operating revenue (122 million yuan, + 15.12%) and net profit (41.048 million yuan, + 26.54%). Liya chemical achieved operating income (51.704 million yuan, + 136.44%) and net profit (4.714 million yuan, turning losses into profits). The net profit of liyatao was -215278 million yuan. Although the proportion of revenue of the company’s new materials sector is small, the scale of revenue shows an upward trend year by year. The company has mastered a series of proprietary technologies for the industrialization of casas300 special ceramic materials through technology exclusive license, which is the first in China, with leading technology level and stable supply capacity. In 2022, Liya new materials will focus on promoting the acceptance of scientific research projects and the expansion of customer applications. Liya chemical will be committed to enhancing profitability while enriching product categories.
We believe that the company’s ceramic materials are technically scarce. After the market application is gradually expanded, it will enter a large-scale stage, and the income scale is expected to continue to expand.
The company’s sales expense rate (3.14%, -0.17pcts), management expense rate (6.25%, + 0.37pcts) and financial expense rate (0.57%, -0.26pcts) changed slightly, mainly due to the increase of the company’s personnel and the improvement of salary level. The company’s R & D expense ratio (2.27%, + 0.41 PCTs) and the growth of R & D expense (108 million yuan, + 58.12%) are due to the company’s R & D innovation layout. The company will continue to focus on the layout of the electronic components industry chain, go deep into key raw materials vertically, expand product categories horizontally, and enhance the sustainable competitiveness of the company. By the end of the reporting period, the company had 264 patents, including 53 invention patents, 200 utility model patents, 11 design patents, and 142 patents under application, including 112 inventions.
The company’s inventory (1.129 billion yuan, + 18.56%), including raw materials (236 million yuan, + 24.25% compared with the beginning of the period) and products in process (113 million yuan, + 43.75% compared with the beginning of the period), maintained a high growth level. The company actively prepared goods for self-produced components and new materials business. During the reporting period, the net cash flow from operating activities (594 million yuan, + 223702%) improved significantly, and the collection increased significantly.
The company plans to spin off its holding subsidiary, Guangzhou Tianji, to be listed independently on the science and innovation board, so as to enhance the comprehensive competitiveness of its subsidiaries
Fujian Torch Electron Technology Co.Ltd(603678) currently holds 51.58% equity of Guangzhou Tianji. Guangzhou Tianji owns independent and controllable ceramic dielectric material preparation technology and semiconductor film process. It is one of the few enterprises in China that realize the whole process from the preparation of ceramic, film and other dielectric materials to the production of microwave passive components. One of its core products, microwave chip capacitor and dielectric preparation technology “grain boundary layer dielectric substrate” has reached the leading level in China, and some achievements have reached the international advanced level. Guangzhou Tianji products are widely used in military radar, electronic countermeasure, guidance, satellite communication and other national defense and military industry (including aerospace) fields, as well as 5g communication, optical communication and other civil fields. In 2021, its market share and profitability were further improved, its position in the industry was continuously consolidated, and its operating revenue (174 million yuan, + 37.48%) and net profit (581898 million yuan, + 44.97%) were realized. We believe that this spin off and listing will help Guangzhou Tianji to carry out independent financing based on the platform of science and innovation board, promote the development of microwave passive components, and further enhance its profitability and comprehensive competitiveness.
Equity incentive stimulates the internal vitality of enterprises and demonstrates confidence
For three consecutive years, the Company repurchased part of the company’s shares with its own funds through centralized bidding transaction for the implementation of employee stock ownership plan or equity incentive. During the reporting period, the company used RMB 299945 million to repurchase 560600 shares. After the repurchase, the special securities account for repurchase held a total of 1953300 shares. In the same period, the company implemented restricted stock incentive in 2021, granted 826800 shares to 147 directors, senior executives, core backbones and senior employees with more than 20 years of service in the company (including holding subsidiaries), accounting for 0.18% of the total share capital, and the grant price was 30.00 yuan / share.
Assessment objectives at the company level: in the first lifting period, the operating revenue in 2020 is taken as the base, and the growth rate of operating revenue in 2021 is not less than 30%, or the growth rate of net profit in 2021 is not less than 30% based on the net profit in 2020; The second period of lifting the restrictions on sales is based on the operating income in 2020, and the growth rate of operating income in 2022 is not less than 69%, or based on the net profit in 2020, the growth rate of net profit in 2022 is not less than 69%. We believe that equity incentive will fully stimulate the internal vitality of the enterprise and stabilize excellent talents.
Investment suggestions:
Military electronic components have higher or more special requirements for product performance, reliability and supply, high technical content, high industry concentration and stable competition pattern. As one of the main manufacturers of highly reliable MLCC in China, the company is one of the first batch of enterprises to pass the aerospace product certification. It has undertaken a number of national military scientific research tasks and has established good cooperative relations with most military enterprises and institutions. We believe that the rise in downstream demand of the military industry during the 14th Five Year Plan period is clear. Under the strategy of the continuous development of China’s military informatization, the number of informatization equipment and the value of unit equipment are expected to be further improved. As the basic component of informatization equipment, the capacitor has strong industry growth certainty. We estimate that the net profit attributable to the parent company from 2022 to 2024 will be 1.223 billion yuan, 1.442 billion yuan and 1.645 billion yuan respectively, and the EPS will be 2.66 yuan, 3.14 yuan and 3.58 yuan respectively, corresponding to 20.0, 17.0 and 14.9 times of PE respectively. Based on the industry position of the company and the future development prospect of the products, we maintain the “buy” rating, with the target price of 81.15 yuan / share, corresponding to pe30.5 yuan from 2022 to 2024 respectively 5. 25.9, 22.7 times.
Risk tip: the price of MLCC drops, the demand of downstream civil products market changes, and the application and promotion of ceramic materials is not enough.
