Zhenhua Technology (000733): Military electronics leader is expected to maintain rapid growth in 2Q19

Zhenhua Technology (000733): Military electronics leader is expected to maintain rapid growth in 2Q19

Zhenhua Technology (000733): Military electronics leader is expected to maintain rapid growth in 2Q19

Forecasting 22% profit growth in the first half of 2019 We expect the company to achieve a net profit of 0 in the second quarter of 2019.

0.94 million yuan, a year-on-year increase of 20%; net profit in the first half of 20192.

00 billion, a year-on-year increase of + 22%.

Attention points Successfully divested Zhenhua Communications and became a pure military electronics leader.

Zhenhua Technology has more than ten subsidiaries and has high technical strength and brand influence in the field of military electronic components. Among them, Zhenhua Xinyun (wavelength capacitor), Zhenhua Yunke (chip resistor), and Zhenhua Fu (chip)(Type) inductors) and other subsidiaries are divided into the leader of each market segment.

The main customers of the company’s high-tech electronics sector are aviation, aerospace, electronics and other military central enterprises, as well as local military state-owned enterprises and weapons.

On May 6, 2019, Shanghai and Germany completed cash appreciation and industrial and commercial changes to Zhenhua Communications. The listed company’s shareholding in Zhenhua Communications decreased from 60% to 49%. Zhenhua Communications no longer replaces the scope of consolidated statements of listed companies.
At present, listed companies have transformed into pure military electronics advanced enterprises.

Benefiting from the accelerated growth of the national defense informatization industry and localization requirements, the company’s military performance has maintained rapid growth.

Xi Jinping pointed out that it is necessary to ensure that mechanization is basically achieved by 2020, and significant progress has been made in informatization construction; strive to basically achieve modernization of national defense and the military by 2035; and a world-class 厦门夜网 military that will be fully built by the middle of this century.

The current years are in the period of recovery and growth after the military reform and an important period of informatization construction. We expect the average growth rate of the national defense informatization industry to be 15% -20%.

In the end, conventional efforts have been made to increase the localization rate of equipment. Zhenhua Technology has also strengthened the research and development of high-end military products and continued localization requirements.

Benefiting from this, the company has achieved a net profit growth of 24% in the first quarter of 2019; we judge that the company will maintain rapid growth in the second quarter, and it is expected that the net profit will increase by about 20%.

Pay attention to the progress of the stock incentive plan.

The company’s equity incentive budget disclosed at the end of 2018 is intended to grant 9.37 million stock subsidies to 417 people at an exercise price of 11.

92 yuan / share, the exercise conditions are: 1) 17 years as the base period, 19/20/21 net profit growth is not less than 30% / 50% / 75% and the benchmark 75 quantile;/ 21 years ROE is not less than 3.

75% / 4.

25% / 4.

75% and benchmark 75 quartiles; 3) ΔEVA is positive.

Estimates and recommendations Revise down revenue forecasts (Zhenhua Telecom is no longer consolidating), slightly increase asset impairment loss forecasts (we are more cautious about repayment of civilian products), and lower net profit forecasts for 19/206.

4% / 3.

1% to 3.

12 ppm / 3.

910,000 yuan, an increase of 20 in ten years.

7% / 25.


The current company corresponds to 25.

6x / 20.

5x 19 / 20e P / E.

We maintain our target price of 19.

60 yuan, corresponding to 32x / 26×19 / 20e P / E, 26% potential growth space, redefine the “outperform industry” rating.

Risks The return of civilian products exceeded expectations; the delivery of military products orders is uncertain.

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