Lixun Precision (002475) Commentary Report: High Growth Continues to Validate Growth Logic Optimistic about New Business Format of the Company’s Business Model

Lixun Precision (002475) Commentary Report: High Growth Continues to Validate Growth Logic Optimistic about New Business Format of the Company’s Business Model
On October 21, 2019, the company released the report for the third quarter of 2019, and the company’s 2019Q1-Q3 revenue was 378.3.6 billion, 70 compared to the same period last year.96%, net profit attributable to mother 28.880,000 yuan, 74 year on year.26%, net cash flow from operating activities 61.110,000 yuan, 194.59%.Among them, 2019Q3 revenue was 163.9.5 billion yuan, 62.24%, net profit attributable to mother 13.8.6 billion, 66 year-on-year.74%, the highest in a single season.At the same time, the company gave 2019 performance guidance, and net profit attributable to mothers in 201939.48-42.2 billion, 45% -55% year-on-year.  Comment: Continued verification of profitability, rapid growth of consumer electronics, automotive and communications businesses. In the last three reports, we proposed that many new businesses of the company are in the period of profit release, and the company’s continuously optimized financial indicators are further verified.The company’s quarterly operating profit margin (initial investment income from operating profit margin and net return on changes in fair value) was 5, respectively from 2018Q1 to 2019Q3.55%, 8.51%, 10.25%, 9.5%, 7.26%, 9.33%, 10.8%, it can be seen that 2019Q1, 2019Q2, and 2019Q3 have increased by at least 1.71pct, 0.82pct, 0.55 points, operating profitability has further improved.Further segmentation, the company’s gross profit margin for Q1 to Q3 2019 decreased slightly by zero.26pct, it can be seen that 2019Q1-Q3 profit improvement to a large extent comes from revenue growth (201武汉夜生活网9Q1-Q3YoY 70.96%) led to the improvement of the expense side (2019Q1-Q3 sales expense ratio + management expense ratio + research and development expense ratio decreased by 0.75pct), referring to the historical gross profit margin situation, the cost-side optimization space is about 2pct.On the consumer electronics business side, we believe that the company’s Airpods business volume is solid and has sufficient capacity to support terminal AirPods sales. It is expected that this year’s revenue share will increase to 38.twenty one%.At the same time, the antenna, acoustics and motor businesses will continue to benefit from the increase in the share of large customers.On the communication business side, we believe that the company will benefit from the good localization of communication equipment. The company’s connector and connection line business is expected to usher in breakthrough growth. The base station antenna filter business will also benefit from the construction of 5G base stations. Operational capabilities continued to increase. High R & D and introduction were bullish on the company’s new business development. The company’s operating cycle in 2018 was 143.In 64 days, the turnover rate of inventory and accounts receivable was 6, respectively.90, 3.94, which has continued to improve over the past three years, indicating that the company’s operating capabilities have continued to increase.At the same time, the company’s R & D expenses for Q1 to Q3 201913.0.6 million yuan, an increase of 66 in ten years.42%, combined with the company’s high-precision system integration experience and learning ability, we are optimistic about the company’s Airpods and the diversified business development status of SPK / RCV, antennas, wireless charging, etc.In the 5G era, three key technologies such as ultra-dense networking, massive MIMO, and millimeter wave communication are evenly distributed in the mobile phone and substrate-side antenna architecture and material development. We believe that the company currently has a large number of technology reserves to seize this industry opportunity.  Driven by controlled investment, the operating conditions of subsidiaries have improved significantly. The company belongs to a controlled investment enterprise, that is, the subsidiary contributes most of the overall revenue and profits. According to the parent company’s statement data, the parent company’s long-term equity investment94.4.5 billion, driving a total asset growth of 323.62 trillion, asset appreciation3.43 times, showing that the operating efficiency of the subsidiary is better. According to the financial data of the interim subsidiary, Ji’an Lixun RF Technology Co., Ltd., Kunshan Liantao Electronics Co., Ltd., Liantao Electronics Co., Ltd., Lixun Precision Co., Ltd., Lixun Electronic Technology(Kunshan) Co., Ltd.’s average revenue and profit improved significantly.See the attached table for the revenue and growth of major subsidiaries. Efficient mergers and acquisitions to create a positive feedback system of “components → modules → terminals” product model.  The company has the expected market segmentation and R & D technical experience in consumer electronics connectors, and uses it as the basis for expanding to other businesses such as connectors, speakers and antennas.With advanced precision system integration experience and learning capabilities, the company first expanded product categories around customers, and then expanded to other major customers at home and abroad.We believe that the company will focus on large customers and use efficient mergers and acquisitions as a means to transform its product model into “components → modules → terminals”. At the same time, it will expand from the consumer electronics side to the communications and automotive side, and gradually form a positive feedback ecosystem.This positive feedback system effectively reduces the company’s operating and technological transformation risks while giving the company room for growth.  Earnings forecast and estimation: Based on the company’s existing business conditions, we raised the company’s EPS for 2019/2020/2021 to 0.78, 0.99, 1.33 yuan, the current corresponding PE is 37.33/29.37/21.73 times.For the company’s future earnings release period, we use PEG to give the company an assessment.The company’s current PEG industry is still undervalued on average. Considering the company’s diversified layout and leading position, we give the company a PEG of 1.1. The average growth rate of the company in the next two years will be 31%, giving the company 35 times PE, based on the 2020 expected EPS of 0.99, given a target price of 34.65, corresponding to a reasonable estimated growth space of 15.96%, maintaining the company’s “strongly recommended” rating.  Risk reminder: AirPods sales, Apple mobile phone sales and Type C penetration are less than expected, changes in key customer technology solutions, changes in exchange rate policies, and increased industry competition risks.