\u3000\u30 Guangdong Tengen Industrial Group Co.Ltd(003003) 08 Zhongji Innolight Co.Ltd(300308) )
[key points of investment]
China is a leader in the optical module industry, and its market share has ranked second in the world. Since its establishment in 2008, Suzhou xuchuang, the business entity of the company, has been committed to the R & D, design, packaging, testing and sales of high-end optical communication transceiver modules. Its product line covers the data communication market and telecommunications market, and widely serves customers at home and abroad in the fields of cloud computing data center, 5g wireless network, telecommunications transmission and fixed network access. With the advantages of industry-leading technology R & D capability, low-cost product manufacturing capability and comprehensive delivery capability, the company has won wide recognition from customers at home and abroad and maintained the continuous growth of market share. According to the statistics of omdia quoted in the company’s annual report, the company’s global market share in 2021 was about 10%, ranking first in China and second in the world.
The compound growth rate of industry revenue was 14%, and the digital communication market became the main source of growth. Optical module is an important part of ICT industry infrastructure. It is widely used in telecommunications networks and data center networks. Thanks to the rapid development of mobile Internet, cloud computing, digital economy, Internet of things and the online acceleration brought by the epidemic, there is a strong demand for 5g, fixed network broadband and data center construction, which drives the continuous increase of the income of optical module industry. According to the forecast, yole module will become the main source of compound market growth of about USD 1.9-15.1 billion in 2020, of which yole module will become the main source of compound market growth in 2020.
The capital expenditure of North American cloud giants accelerated, and the company’s performance increased sharply in the first quarter of this year. The growth rate of capital expenditure of North American cloud giants is one of the important indicators of the prosperity of the optical module industry. Meta said in its annual report that the year-on-year growth rate of capital expenditure this year will be significantly increased by 53% – 79%. Google raised the expected growth rate of annual capital expenditure, and Amazon also said that infrastructure capital expenditure will remain rising. The company’s customers cover cloud giants in China and North America. 2022q1 has benefited from the acceleration of customers’ capital expenditure. The operating revenue and net profit attributable to the parent company increased by 41.91% and 63.38% respectively year-on-year.
The company has the core competitiveness of the industry and its market share is expected to continue to increase. The technology iteration and customer demand of the optical module industry change rapidly. We believe that the R & D, mass production and delivery ability of new products is the core competitiveness of the optical module industry company. The company has a senior and professional management and R & D team, which can quickly respond to customer demand. The release and mass production rhythm of high-end products continues to be in the forefront of the industry, with significant first mover advantage. In addition, the company has multiple R & D and production bases in China and overseas, which can flexibly respond to emergencies and potential trade policy risks and ensure supply capacity. The company is expected to maintain its competitive advantage and continue to increase its market share in the future.
The company’s valuation is at the bottom of the historical range, which deviates significantly from the fundamentals. We conducted an in-depth review of the company’s historical market over the past five years and found that the stock price trend of the company is mainly affected by the growth rate of capital expenditure of North American cloud giants, the growth rate of quarterly revenue of the company, the prosperity of the industry and other factors. Through combing and judging the fundamentals of the industry and the company, we believe that the current valuation level of the company is significantly deviated from the growth trend of the company’s future performance, It has both safety margin and investment prospect.
[investment suggestions]
The company is the world’s leading manufacturer in the optical module industry. In recent years, its performance has increased steadily, its market share has continued to improve, and its product structure has been inclined to the overseas and high-end markets with high gross profit. With the acceleration of data center construction of overseas cloud giants and the recovery of telecom market demand, we are optimistic that the company will maintain the double growth of performance and market share by virtue of its competitive advantage. Considering the operation of the company and the improvement of downstream demand, compared with the previous forecast, we raised the forecast of revenue and gross profit margin from 2022 to 2024, and raised the forecast of period expense rate. It is estimated that the operating revenue of the company from 2022 to 2024 will be 9.575 billion yuan, 11.679 billion yuan and 13.74 billion yuan, the net profit attributable to the parent company will be 1.145 billion yuan, 1.413 billion yuan and 1.709 billion yuan, and the EPS will be 1.43 million yuan, 1.77 million yuan and 2.14 yuan, corresponding to 22 times, 18 times and 15 times of PE. We are strongly optimistic about the future performance of the company, adjust it to the “buy” rating, and give the company a 30 times PE valuation in 2022, with a six-month target price of 42.9 yuan.
[risk tips]
The capital expenditure of cloud computing giant manufacturers is lower than expected;
Continuous shortage and price rise of upstream raw materials;
The risk of intensifying Sino US trade friction;
Market competition intensifies.
