Zhenhua Technology (000733): 1Q19 net profit grows by 24 per year.

08% military electronics leader expected to usher in 佛山桑拿网 revaluation

Zhenhua Technology (000733): 1Q19 net profit grows by 24 per year.

08% military electronics leader expected to usher in revaluation

The 1Q19 results were in line with expectations. Zhenhua Technology announced the results for the first quarter of 2019: total operating income11.

5.9 billion, a decrease of 21 a year.

72%; net profit attributable to mother is 1.

0.6 million yuan, an increase of 24 in ten years.

08%, basic EPS is 0.

21 yuan, in line with expectations.

The decline in revenue was due to the active optimization of the business structure; the military product business drove net profit growth.

The company’s revenue in the first quarter of 19 decreased by 3 every year.

2.1 billion US dollars, mainly due to the company’s initiative to reduce the size of the communication terminal business, how much revenue Zhenhua Communications reduced.

1.3 billion (YoY-64%), while revenues from main industries such as military high-tech electronics increase by 1.
.

9.2 billion (+ 28% year-on-year).

Gross profit for the first quarter of 19 was 4.

20 ppm, YoY + 45%, gross profit margin is 36%, YoY + 17ppt; operating profit YoY + 11%, operating profit growth rate is lower than gross profit growth rate, mainly due to research and development expenses YoY + 80%, sales expenses YoY + 48%Government subsidies decreased and asset impairment increased.

Cash flow from operating activities for the first quarter of 19 was -1.

92 trillion, better than -2 in the same period last year.

3.6 billion.

The development trend is optimistic about the growth of the company’s military electronics business.

Zhenhua Technology is a leader in the high-tech electronic components industry in the Southeast Asian aerospace industry. It has high technical strength and brand influence in the field of military electronic components. Zhenhua Xinyun (capacitor), Zhenhua Yunke (chip resistor),Zhenhua Fu (chip inductors) and other subsidiaries of various market leaders, military products accounted for more than 90% of the company’s net profit.

Benefiting from the development of equipment in the fields of high-level aviation, aerospace, information technology, weapons and other fields, as well as accelerated domestic substitution of high-end electronic components, we expect Zhenhua Technology’s internal growth to continue to be higher than the average level of downstream industries.

Moreover, the company can continue to focus on its main business and plan employee incentive plans, which is expected to further improve operating efficiency and stimulate growth potential.

In addition, the exogenous growth brought by potential asset integration is still worth looking forward to.

Earnings forecast We maintain our 2019 / 20e net profit forecast3.

34 ‰ / 4.

03 trillion unchanged.

Estimates and recommendations currently correspond to sustainable companies.

8x / 18.

9x 19 / 20e P / E, estimated to be still significantly lower than its peers.

We believe that the further shrinkage of the non-main business of the conversion company, as a pure military electronics research and development enterprise with strong comprehensive strength, is expected to usher in a revaluation of value.

We maintain a recommendation level as well as 19.

The target price of 6 yuan corresponds to 30x / 25x 19 / 20e P / E, compared with the current 32% growth space.

Risks in the pace of military product order delivery, uncertainty in the progress of new product development and batch production.