AVIC Optoelectronics (002179) Interim Review: Gross Margin Re-Decreases As Scheduled, Profitability of Civilian Products Improves, or Foundation for Accelerated Growth Grows
Investment highlights: Event: The company releases its semi-annual report for 2019: 1) The company’s H1 revenue in 2019 is 45.
9.7 billion, the previous growth rate was 28.
23%, valued at 18.
20%; achieve net profit attributable to mother 5.
7.3 billion, a previous growth rate of 23.
13%, value 5 over the same period last year.
37%; net profit after deduction is returned to mother 5.
60 ppm, a ten-year growth rate of 22.
87%, a year-on-year value of 11.
14%; net operating cash flow is 2.
190,000 yuan, an increase of 278 in ten years.
55%; 2) In a single quarter, the company’s Q2 single-quarter operating income was 24.
41 ppm, an increase of 15 in ten years.
80%, an increase of 13 from Q1.
19%; net profit attributable to mother 3.
40 ppm, an increase of 14 in ten years.
14%, an increase of 46 from Q1.
The company’s performance basically met market expectations.
Comment: The company’s revenue growth rate is faster than the performance growth rate. In essence, the gross profit rate remains stable, but the increase in research and development expenses has led to an increase in the expense ratio during the period.
The company’s H1 revenue growth in 2019 (28.
23%) is significantly faster than the growth rate of net profit attributable to mothers (23.
13%); gross sales margin was 33.
25%, an average of 33 in the same period last year.
71%, after a slight fluctuation in the previous two years, began to build a stable base; during the period, expenses were 17.
23%, an increase of 0 every year.
68pct, of which R & D expenses are 4%.
4.0 billion, with an annual growth rate of 54.
43%, which is the main factor that caused the company’s expense ratio to rise during the first half of the year.
In addition, the company’s Q2 single-quarter performance growth rate (14.
14%) than the previous quarter’s single-quarter performance growth (39.
14%), a significant decrease, mainly due to the high base of Q2 2018.
In the second quarter of last year, net profit attributable to mothers was achieved.
98 ppm, a single quarter performance hit a record high, compared to 2 in the past 8 quarters.
The gross profit margin has not fallen as scheduled. We believe that the business structure is tilted towards civilian products, and the significant improvement in the profitability of communications 5G civilian products may be the main source of contribution to boost the company’s overall gross profit level.
From the perspective of military-civilian business structure, AVIC Fujita’s civilian products are mainly used in the field of 5G communications, while the parent company’s products are mainly used in military defense and other fields. The former’s revenue growth rate (49.
69%) was significantly higher than the rest (31.47%).
Therefore, the company ‘s revenue from the civilian products business is growing faster than that from the military products business. Assuming that the gross profit margin of the final product remains unchanged, the company ‘s overall gross profit margin should theoretically shift, but it does not actually appear.
The company’s overall gross profit margin in the first half of the year was 33.
25%, only 0 in a year.
We believe that the decrease in gross profit margin is adversely affected by the adjustment of product structure, mainly due to the benefits of upgrading 5G communications products and the acceleration of domestic substitution. Significant improvement in 北京桑拿洗浴保健 profitability of civilian products may be the main contributing factor to maintaining stable gross profit margin.
As AVIC’s superior RF connector company, Huawei is the company’s largest customer. The high-end volume of high-end consumer products has helped to significantly improve profit growth. Net profit in the first half of the year was zero.
3.8 billion, a previous growth rate of 544.
83%, significantly higher than the parent company’s performance growth (20.
In fact, this is also a further continuation proof of the company Q1 that we have been focusing on to achieve beyond-expected growth and logic, that is, military products are the stabilizer of the company’s performance growth, and civilian products provide an additional bomb for the company’s profit growth.
The proportion of research and 杭州桑拿网 development expenses increased, meeting the trend of independent controllability of military products and the urgency of domestic substitution of civilian products, further consolidating technological advantages and expanding product categories.
The company’s R & D expenses accounted for 8 of its revenue during the reporting period.
79%, compared with the same period last year (7.
28%) increased by 1.
In the military products business, revenue growth will generally be accompanied by an increase in R & D investment, mainly the pre-research mechanism of weapon models and customized production models with multiple specifications and small batches.
In terms of private products business, the company maintains a relatively leading competitive strength in the field of new energy vehicles and communications 5G. It is a supplier of Tesla and BYD, a leader in domestic new energy vehicles, and a gold supplier of cables and connectors in the field of communications 5G;Through Huawei’s rapid advancement of domestic substitution in the supply chain, the company binds large customers and maintains high R & D promotion.
In addition, the significant increase in employee compensation brought by the increase of 296 R & D personnel in 2018 is an important reason for the substantial increase in R & D expenses.
Operating cash flow has improved significantly, and the company has proactively adapted to new changes in the liquidity of the supply chain, reflecting that the company’s bargaining power in the upstream and downstream of the industry chain has improved over the same period of the previous year.
The company’s net operating cash flow for the previous year was 2.
190,000 yuan, an increase of 278 in ten years.
55%; from the perspective of operating cash inflows, bills receivable during the same period was 18.
2.7 billion, down 21 from the beginning of the year.
28%, the cash rebate of downstream customers has improved significantly; from the perspective of operating cash exchange, the bill payable during the same period was 10.
59 trillion, an increase of 221 over the beginning of the year.
88%, the company expanded the proportion of settlement of bills payable in settlement of payment, significantly reducing the occupation of monetary funds, and also reflected the ability to control upstream suppliers.
With the continuous consolidation of the company’s industry and the continuous strengthening of its overall strength, the company’s bargaining power in the industry chain has been significantly improved, and the external environment for production and operation activities has been further improved.
High inventory indicates that the company is full of orders, capacity expansion guarantees timely delivery of the company, and demonstrates the company’s ability to accurately grasp the new round of possibilities of military-civilian integration and the release of autonomous and controllable dividends.
The H1 company’s inventory is 21 in 2019.
19 trillion, an earlier increase of 7.
83%, and has always remained high.
Considering the business model of selling military products for production, the high inventory shows that the company has ample short- and medium-term orders.
At the same time, the company continued to increase capital expenditures: this year, H1 has changed its construction in progress to another.
US $ 5.7 billion, mainly due to the acceleration of the company’s new technology industrial base construction progress; the company’s purchase and construction of fixed assets and other long-term asset expenditures in the past few semi-annual periods amounted to 2 respectively.
10,000 yuan, 1.
2.4 billion and 1.
56 million, indicating that capital expenditures remain high.
The high capital investment will help the company to further release its capacity in the future and improve its order delivery capacity.
It is expected that after the tasks are successfully delivered in the second half of the year, the assets and liabilities end subjects may continue to shift to the profit end, and then the company’s performance growth center will move upward. The subsidiary AVIC Fujitec and the parent company of Shenyang Xinghua have made concerted efforts to help the company’s overall performance achieve long-term and sustainable growth.
The parent company realized a net profit growth rate of 20 in the first half of the year.
24%, lower than the consolidated statement side (23.
AVIC Fujitec achieved net profit of 0 in 2019H1.
3.8 billion, a previous growth rate of 544.
83%, the previous parent company ‘s operating performance, as a model supplier of connector suppliers that cut into Huawei ‘s supply chain and a domestic military supporting new model enterprise, the company is expected to make full use of communications 5G construction and the release of military supporting orders in the future; another companyThe company, Shenyang Xinghua, achieved net profit of 0 in 2019H1.
5.4 billion yuan, a growth rate of 26 in ten years.
63%, significantly faster than revenue growth (5.
66%), the company has achieved profit growth faster than revenue growth in the past three years. The improvement of corporate governance has led to continuous improvement in operating efficiency. As the first military veteran enterprise specializing in the production of aviation electrical appliances, it has continued to advance through the military-civilian integration strategyThe company will renew its vitality in the future and fully benefit from a new round of expansion of military products.
The second phase of equity incentives or reforms will be implemented every year, further binding the company’s operating performance with stakeholders, and it is expected to provide continuous momentum for the company’s mid- and long-term performance growth.
The company issued a long-term equity incentive plan in 16 years. The equity incentive was divided into two phases. The first phase of the incentive was released in December 2016. The pricing method is 70% of the average stock price in the first 20 trading days. The total issue value is 1.
6.8 billion of 595.
720,000 shares, unlocked in three phases, the first phase of the stock has been unlocked, 254.
840,000 shares were listed and traded on March 25, 2019, with an annualized income of over 20%, and the incentive effect is very significant.
On average, the long-term equity incentive plan requires the implementation period of the first and second phases of the incentive plan to be 3 years. At present, 32 months have passed since the implementation of the first phase of equity incentives. Therefore, we analyze and judge that the secondThe equity incentive plan may be issued during the year.
The first expansion is unanimous and optimistic about the key investment logic for the reassessment of the value of core military assets under the model development of the military-civilian integration of the company: 1) The company is an absolute leader in the connector of the domestic military defense field.The scarce supply main body; 2) The company has been cultivating for many years in industrial-grade applications such as new energy vehicles, communications 5G, rail transit and nuclear power. The first-mover advantage is obvious. Under the new opportunities of deterministic growth in 5G, EV and high-end equipment construction, it will replaceThe urgency of localized replacement of high-end components, the company will fully benefit from industry demand release and independent controllable policy dividends; 3) the company’s new products such as high-speed backplanes, optical modules, special connectors, liquid cooling, integrated cabinets, etc. have high gross profit andThe growth rate is fast, the overseas market blossoms and business expansion is expected to continue to help the company’s performance growth to buy a new level; 4) The company has a high-quality governance structure that helps to review job applications, and employee self-interest is closely related to the company’s high-quality development.The background of state-owned enterprises, private mechanisms and foreign company management ensure the company’s outstanding quality.
Maintain profit forecast and buy rating.
Maintain the company’s attributable net profit forecast for 19/20/2112.
3 ppm, the EPS for 19/20/21 is 1 respectively.
2 yuan / share, currently sustainable (2019/08 / 26,41.
34 yuan / share) corresponding PE is 34/24/19 times.
The company is an outstanding enterprise in the world connector industry and domestic defense technology industry that has both product competitive advantages and improved governance structure. Considering that the company is in the acceleration phase of a new round of military procurement expansion, new models of merged products have been put into production.The product cycle is expected to fully benefit from the dual dividends of military industry and demand release of EV, 5G and autonomous controllable policies.
Therefore, maintain BUY rating.
Risk reminders: 1) Uncertainty of order release rhythm and order confirmation progress in the downstream military and civilian products industry; 2) Risks of new business and overseas business market development; 3) Risk of squeezed profit margins due to fierce industry competition;The risk of a decline in the proportion of new products leads to a decline in profitability.