Peng Ding Holdings (002938): Profit elasticity comes from benign changes in pattern and efficiency Diversified technology realization path is clear

Peng Ding Holdings (002938): Profit elasticity comes from benign changes in pattern and efficiency Diversified technology realization path is clear
Event: 2018 revenue 258.5 trillion, ten years + 8%, net profit attributable to mother 27.700 million yuan per year + 51%.Q4 single quarter revenue was 85.800 million, + 10% MoM, -18% per year, net profit 12.1 ‰, + 22% a year, +6 from the previous month.9%.It is proposed to pay 5 yuan for every 10 shares. The modest growth in revenue is in line with the current situation of demand and capacity release. The high profit growth comes from the benign changes in the supply structure and its own efficiency: the company’s restructuring revenue has grown at a moderate rate because the customer’s mobile phone product sales growth rate has declined and the company has not experienced largeNew scale production capacity is released.Q4 revenue decreased by -18% year-on-year, due to the high base. Due to the lag of customer mobile phone products in the same period of last year, the month-on-month increase of + 10% was a phenomenon of low production season.The company’s biggest change comes from the profit side. From an annual perspective, the company’s profit margin is related to the type of material number, share, crop rate, cost control (yield rate, delivery date, three major cost control, etc.) and expenses as a whole. In 2014, customers launched large-screen mobile phones. The upgrade of material numbers and good sales resulted in high gross profit margins. The company’s gross profit margin changed from 2015 to 2017 due to the rapid increase in terminal sales. In 2017, the actual customer mobile phone upgrade 杭州夜网论坛 penetration (full screen + face recognition), the company’s soft board business line gross profit margin increased accordingly, but due to SLPThe initial yield of the business line is insufficient, and the fixed cost needs to be paid, which results in loss of money and lowers the overall gross profit margin. The overall growth of the company’s gross profit margin increased by about 5 in 2018.4 pct, basically large customers began to gradually reduce the number of suppliers for the flexible board supply chain, the company’s material number level and distribution improved (this trend continues), and gradually, the SLP business passed the adaptation period and began to stabilize the profit.The automation efficiency of production lines has also been improved through technological transformation (cost item). On the expense 北京夜生活 side, the total number of employees in the company decreased from 40,539 in 2017 to 35,479 in 2018, a decrease of 12%. Assuming that the per capita expenditure is 30,000 yuan (instead of a one-time replacement in the initial period), the savings will be 1.A budget of 500 million yuan (partly reflected in operating costs), accounting for about 5% of net profit. Overall, the improvement of the company’s net profit margin mainly comes from the improvement of gross profit margin (SLP, automated reduction of personnel and efficiency), and cost control (such as staff downsizing) also contributed. Business breakdown: Communication boards are mainly used for mobile phones, switches, servers and other equipment. Customers include Apple, Google, Sony, HOV, etc., with revenue of USD 20.4 billion in 2018, accounting for 78% of total revenue, at least +8.4%; gross profit margin 22.4%, an increase of 4 per year.8.Department of mobile phone FPC material number upgrade, SLP began to profit, automation efficiency improved. Consumer electronics and computer boards are mainly used in tablet computers, wearable devices, game consoles and smart home devices. Customers include Apple, Google, Facebook, Amazon, Microsoft, Huawei, etc.Revenue 54.400 million, accounting for 20.8% per year +7.1%, gross margin 26.1%, a maximum increase of 7 percentage points, due to product structure upgrade (yearly downstream wearable devices and other technology upgrades, sales increase), production efficiency improved. Cost of main business, direct material cost 142.800 million, accounting for 71% of operating costs.9%, specific gravity decreased by 2 pct, the absolute value is -1 per second.29%, slower than the growth rate of revenue, and the yield rate has increased. The price of the components and components required for the production part number in the reporting period has continued to decline, resulting from the overall increase in materials; direct labor costs16.900 million, accounting for 8% of operating costs.5%, the proportion decreases by 0 every year.1 pct, the absolute value is flat for two years, slower than the revenue growth rate, which is caused by reducing personnel and increasing efficiency, and caused by automatic upgrades; manufacturing costs 38700 million, accounting for 19% of operating costs.5%, the proportion increased by 1.9 pct, the absolute value is +11 for ten years.6% faster than revenue growth. Manufacturing costs are mainly equipment depreciation and energy. In the reporting period, depreciation increased due to the increase in the company’s investment in automation equipment. At the same time, reporting and PCB product upgrades, process requirements increased, and equipment replacement also increased accordingly (such as increased expenses for SLP). In fact, the three major cost changes can grind Peng Ding’s main competition at this stage is actually the improvement of efficiency and the realization of technology.Because of the increase in revenue, the labor cost is more than flat, indicating that the marginal utility of the company’s production has increased and led to an increase in downsizing with personnel (reduction of 5,000 people, such as the “Shenlong” production of SMT processing in the latter part of the FPC business)Line is Washington’s first highly automated placement line).In addition, also in the context of increased revenue, the company’s material costs have decreased year by year, indicating that although there has been an increase, the yield, material utilization (FPC needs board production) have been improved, the materials have been saved, and the price increase has beenTechnology premium instead of simply using more expensive, more raw materials. Therefore, the increase in the manufacturing costs of PCB companies may be an optimistic signal, which represents the improvement of automation and the release of high-quality capacity, which has a certain guiding significance for the subsequent increase in profits.Peng Ding’s profit growth in the reporting period mainly came from the cost side. Expense end, selling expenses 3.0 billion, a year + 15% faster than revenue, due to salary and benefits, transportation costs, agency fees, insurance costs and other costs increased; management costs 9.1 billion, the previous + 28% growth rate was faster than revenue, management bonuses were accrued, amortization of land for new headquarters buildings increased; research and development costs.200 million, previously + 19%, faster growth than revenue, continuous research and development expenditure is the company’s core competitiveness source, the cornerstone of technology realization; financial costs of 79.9 million yuan, more than -40%, due to increased revenue. The per capita index in 2018 was 720,000 yuan per capita, + 15% per year, and net profit per capita was 7.80,000 yuan a year + 62%.The company’s per capita revenue level can be ranked in the top 3 of the PCB sector.In 2018, the growth rate was measured in 2017, and the acceleration rate of revenue growth was greater than the company’s reduction in personnel and efficiency, and 2016 was the company’s performance.The low point caused a low base. In 2018, the company’s increase was mainly due to profit, and mobile phone sales of major downstream customers also showed some pressure. Profitability of each plant, Qingding Precision (Huai’an) revenue was 75.540,000 yuan, net profit 6.3 billion, previously + 200% +, first of all, customer product upgrades, supplier compression and material upgrades and share upgrades brought by Hongqisheng (Qinhuangdao) revenue 71.4.5 billion, net profit 9.700 million, before + 100% +, due to SLP’s post-production report that the twist was profitable and contributed to the increase in revenue. According to estimates, SLP accounted for less than 5% of the company’s 2018 revenue, which is less than 1.2 billion.The compound growth rate has a chance to exceed 30% -50%. According to estimates, the Shenzhen & Yingkou plant has a revenue of about 11 billion yuan and a net profit of about 11.700 million, the previous growth rate was between 5-10%. Can be polished, the company’s Shenzhen plant (the largest plant in the initial stage) is relatively saturated in production. Before the second plant (still planning and construction) is launched, it mainly replaces product structure replacement and improves efficiency to tap the potential of performance, but the effect flexibility is less thanQinhuangdao and Huaian Plants. The production capacity distribution, product structure optimization, and efficiency improvement of Qinhuangdao and Huaian plants are more flexible than Shenzhen’s contribution to performance. The company’s IPO project funds are also mainly invested in Qinhuangdao and Huaian. In fact, the old factory areas of PCB companies (usually developed coastal areas) are generally responsible for the production of high-end products, skilled in transferring production, and shipping high-value orders to new factory areas (generally those with relatively less developed areas)However, the new equipment in the new plant has a new rate, labor costs tend to increase the advantage, and profit elasticity is possible. Shennan, Jingwang, Hudian, and Chongda are all feasible. Therefore, we believe that the follow-up of Pengding’s Qinhuangdao, Huai’an, and Yingkou (made of multilayer boards) will be the main plant areas for the company’s performance growth. Financial indicators to pay attention to: The top five customers accounted for 83% of the revenue in 2018, of which the largest accounted for 70%.The top five accounted for 81% in 2017, and the first accounted for 63%.It can be seen that the company’s largest customer revenue in 2018 was 1.81 million yuan (about 15 billion US dollars in 2017), an increase of 20% every year.In fact, the company always said that the product structure was upgraded when explaining the increase in profits. Since the profit-making effect of orders from major customers is indeed stronger than other customers, the revenue growth of major customers is faster than the overall revenue growth. The top five suppliers accounted for 27% in total, of which the number one supplier accounted for 15%, and the rest were less than 5%. Total non-recurring gains and losses1.6 trillion, of which government subsidies1.10,000 yuan, entrusted wealth management income 0.9 trillion, non-current assets disposal profit and loss-0.300 million yuan; fixed assets of 7.8 billion yuan, end of period + 13% over the beginning of the period, normal technical transformation, expansion of production changes, not much new capacity in 2018; construction in progress7.US $ 0 billion, a year + 219%, the fund-raising projects have been constructed successively; among them, the proposed expenditure of Huai’an FPC project is US $ 2.4 billion, and the expenditure during the reporting period is 2.800 million, the project progress is 11%; Qinhuangdao HDI (including SLP) projects invested 1 in the reporting period.2 trillion, the proposed expenditure of 12 trillion, the project progress is about 10%. The planned capital expenditure for 2019 is 33.7.3 billion, the main investment projects are: headquarters building, Shenzhen Second Factory, Huai’an FPC expansion project, Qinhuangdao HDI expansion project. Short-term borrowing 20.500 million, before -40%, excessive cash returned to bank borrowings; net operating cash flow 62.100 million, previously + 271%, about 2 of the profit.5 times, the sales revenue of Q4 in the previous year was relatively large, and the cash was delayed until the current year, and the sales growth this year; the net cash flow of investment activities was -3.2 billion US dollars, which became -31%. The subsidiary equity was paid in the same period last yearAllotment; 7.3 billion in monetary funds, + 230% over the previous year, due to receipt of funds raised; accounts receivable 53.8 billion, before -19%, the proportion of sales in December last year broke, causing the balance of accounts receivable at the end of last year to be offset; R & D investment is a leading indicator and a moat of the company’s business. Reports often continue to expand this advantage:Pengding’s R & D growth over the years and changes in its global revenue rankings can be shattered and the gradual growth of R & D expansion can be transformed. The company has gradually grown into the number one global revenue (and profit) company in the past decade.In the nine years from 2008 to 2017, Pengding’s R & D expenses exceeded growth in five years and exceeded revenue. It is also after these five preparation periods that Pengding has become the number one PCB company in the world. In contrast, Xinxing Electronics, another traditional global PCB leader in Taiwan, had slightly insufficient R & D investment between 2008 and 2017. In nine years, R & D expenses exceeded the growth rate of more than 15% in only two years.There are 8 years.The company also lost the world’s number one in the process. PCB is an industry with relatively ordinary R & D attributes. The sustainability and intensity of R & D promotion is one of the criteria for judging whether PCB companies can upgrade and iterate and grow into a global leader. From the top ten global revenue rankings in the past ten years, the revenue and R & D expenditure changes of Taiwan-funded companies that can be compared in Pengding’s growth history can be cut. Huatong Jianding Hanyu Yude Dexingxing’s R & D achievedThe absolute values are obviously smaller than Peng Ding, and for ten years or even less than one tenth of Peng Ding. From the perspective of compound growth rate, most of the four companies’ R & D expense growth rate is about equal to or less than the revenue growth rate.The scale of R & D participation is a leading indicator of the company’s future growth rate. That kind of investment that is weaker than the existing performance growth rate or even stalled expenditure will definitely lead to the replacement of performance growth rate. The number of reports, the amount of investment in research and development of Pingding12.200 million, previously + 19%, accounting for 4% of revenue.7%.The main research and development directions include 5G low-loss high-frequency transmission technology, 5G base stations, antenna board technology, low-loss multilayer stacked flexible board technology, automotive high-frequency radar board technology, embedded component carrier board technology, and coreless carrier board technology. The major R & D results of the report include five types of carrier board technologies (volume production, three successful developments), five 5G technologies (one mass production, four successful developments), alternative technologies related to the Internet of Things, and six future PCBs.Technology (including miniLED PCB technology).The company’s board products have a minimum volume / line width of 0.025mm, has now formed the mass production capacity to form SLP, SLP is expected to become the mainstream form of HDI. According to the number of reports, the company has obtained 65 patents, and as of 2018, it has gradually obtained 609 patents. The accumulated number of patents and the number of supplements and its peers in the sector have a competitive advantage.Cooperated with Tsinghua University of Technology and Taiwan Industrial Research Institute, and plans to establish a Shenzhen Flexible Electronics Research Institute with Beijing University and Western Technology University. The cooperation specifications are far ahead in the sector. We believe that Pengding has regained its performance growth and relaxed investment in research and development. The company can directly participate in the pre-development of future hardware products of technology giants such as Apple, Google, Amazon, and Microsoft. After the technology giant creates consumer demand, Pengding is the most beneficial.PCB companies.In fact, Pengding’s advantages in R & D are constantly expanding, and R & D will continue to become a moat for the company’s business. ROE hits a new high and will gradually enter the era of internal efficiency optimization + multi-business technology realization: long-term ROE = 18.3%, up to about 2 percentage points. It can be ground from the changes in the past years. The company’s turnover rate and equity multiplier are relatively stable. The core factor of the ROE change is the net interest rate. Many of the company’s senior management team were born in investment banks.The control of financial indicators is very academic, and Pengding’s cash flow and leverage have been very healthy. The improvement of ROE mainly comes from the increase of net interest rate. In fact, 2018 is the first year of the company’s automated production line, which has reduced labor by about 5,000 people. The installed “Shenlong” SMT production line has also become a tourist attraction for government departments. In fact, due to higher process requirements and higher labor dependency, large-scale automated transformation of flexible board production lines began in recent years. Although the roll-to-roll production line has been launched for more than ten years, the equipment connection and information flowThe construction foundation is very weak, and the assembly of the rear section also relies on a lot of labor for a long time. Peng Ding’s automated transformation of the production line (equipment connection, information flow construction) is only an initial effect, and there is still potential to be tapped in the follow-up. We believe that there are two points for Pengding’s future growth. The first point is the continuous optimization of internal efficiency, with automation as the main measure. The second point is the realization of multi-service technology. The company’s long-term high R & D investment brings together the best in the industry.The team, implementing the best security strategy, co-developed hardware products with global technology giant customers, and continues to grow except for major customers ‘mobile phone business (18% revenue growth in 20%, mostly from mobile phones, and subsequent expansion and improvement (Japanese companies accelerate)(Exit), material number upgrade), increase revenue from non-mobile phone business of major customers (AirPods, iWatch, iPad, etc.), mobile phone business of non-A customers (SLP penetration increase, FPC incremental orders, etc.), non-mobile phone business (materialInternet, wearables, customer hardware products such as Google Amazon). In itself, the substitution of Japanese FPC companies, which account for 30% -40% of the global FPC market, is relatively obvious.The single-month output starts from 2017, and the average value starts in the second half of the year. The monthly output value has drifted more than -15% in the past 6 months. Historically, the company has gradually tracked Dell computers, Motorola mobile phones, and A customer mobile phonesIn the cycle of the change of electronic terminal products and major players, it has completed its own iteration, and each time it achieved technical realization, we believe that the company will continue this trend in the future, through internal efficiency optimization + diversified technology realization, becoming the world’s firstA company whose market share exceeded 10% +. Investment suggestion: Net profit is expected to be 32 in 19-21.3/40.7/53.200 million, the current sustainable corresponding PE is 20 respectively.5/16.2/12.4X, giving a 2019 30X estimate with a target price of 41.8 yuan, give “Buy” rating. Risk warning: industry competition intensifies; new capacity expansion is less than expected; new product progress is gradually expected