\u3000\u3 Shengda Resources Co.Ltd(000603) 516 Beijing Tricolor Technology Co.Ltd(603516) )
Professional supplier of display and control equipment and solutions, with outstanding application in the military field. The company focuses on the display control industry in the subdivided field of multimedia industry. Its core products are display control system equipment, including splicing processing, matrix switching, agent assistance, signal transmission equipment, central control, etc. The products are mainly applicable to multimedia video scenes such as command and control center, conference room and exhibition. The downstream industries mainly involve national defense and military, public security and armed police, emergency management, etc., of which military industry and public security and armed police informatization are the core business of the company.
The downstream boom has brought broad market space, and the display and control industry has ushered in development opportunities. Investment in the field of national defense continued to increase. The budget of national defense expenditure in 2022 was 145045 billion yuan, a year-on-year increase of 7.1%, an increase of 0.3 percentage points over 6.8% in 2021. According to smart research consulting, in 2020, the market scale of military informatization was 102.9 billion yuan, a year-on-year increase of +7.0%. It is expected that the market scale of China’s military informatization will reach 146.2 billion yuan in 2025. The intelligent construction and application of public security big data has been actively promoted. According to the Institute of public security, the scale of public security information market in 2020 was 91.63 billion yuan, a year-on-year increase of + 13.1%, and CAGR reached 13.7% from 2015 to 2020. With the gradual improvement of the national emergency management system, the scale of the emergency management market is expected to expand rapidly. According to the prediction of the prospective industry research institute, the scale of the emergency management market will reach 13% from 2021 to 2025, and the scale of the emergency management market is expected to reach 3.3 trillion yuan in 2025.
With the continuous promotion of self-developed chips, the vehicle business is expected to become a new growth point. In August 2020, the company issued 300 million yuan of convertible corporate bonds for the construction of marketing channels and the development of professional audio and video processing chips. On the one hand, it will fully meet the confidentiality requirements of downstream military industry, public security and other industries. On the other hand, it will help to save costs and improve the gross profit margin of products. At the same time, the company takes a stake in the vehicle optical image solution supplier Yankan technology, which is expected to increase investment in the vehicle field in the future, and the vehicle display and control market is expected to become a new growth point of the company.
Investment suggestion: the company’s downstream application market is booming, and the improvement of informatization level drives the demand for display and control equipment. The continuous promotion of self-developed chips is expected to meet the downstream independent and controllable demand and drive the increase of product gross profit margin. Actively expanding the application in the vehicle field is expected to open up new growth space for the company. We expect the company’s operating revenue to be RMB 620 / 8.5 / 1.16 billion in 2022 / 23 / 24, and the estimated net profit to be RMB 130 / 2.0 / 270 million. Considering the outstanding growth of the company, combined with the valuation of comparable companies and the growth rate of the company’s net profit, we give the company 25 times PE in 2022, corresponding to the target market value of 3.28 billion yuan and the target price of 14.00 yuan. For the first time, the investment rating of “overweight-a” is given.
Risk tip: there is a risk of chip streaming failure, the downstream demand is less than expected, and the on-board business development process is less than expected
