UNIGROUP GUOXIN MICROELECTRONICS(002049)：SPECIAL IC BUSINESS CONTINUES HIGH GROWTH JOINTLY-RUN BUSINESS TURNS LOSSES INTO PROFITS-格隆汇

机构：兴业证券
研究员：SHI Kang/LI Boyan

　　Company Profile
Unigroup Guoxin Microelectronics Co., Ltd., formerly Unigroup Guoxin Co., Ltd., is a China-based company, principally engaged in the design and distribution of integrated circuits (ICs). The Company's IC products consist of smart card chips, special IC products and memory chips. In addition, the Company also engages in the development, manufacture and distribution of quartz crystal components. The Company distributes its products within domestic market and to overseas markets.(Source: Reuters)
　　Event
　　Unigroup Guoxin Microelectronics (the company) announced its 2021 preliminary financial report, stating that it is predicted to made a revenue of CNY 1.9 billion ~ CNY 2.1 billion, a surge of 136% ~160% year on year (YoY); its net profit attributable to shareholders deducting non-recurring items is estimated to turn in CNY 1.7 billion ~ CNY 1.9 billion, up 144% ~ 173% from a year earlier; its EPS will stand at CNY 3.13~CNY 3.46, rising 136% ~160% from that in 2020.
　　If we do a calculation based on the medians in the preliminary report, the company will made CNY 2 billion in net profit attributable to shareholders, a 148% annual growth; it will see a net profit deducting non-recurring items of CNY 1.8 billion, an annual growth of 159%; its EPS will be CNY 3.30; its net profit attributable to shareholders is expected to reach CNY 324 million in Q1, CNY 552 million in Q2, CNY 582 million in Q3, and CNY 543 million in Q4, a year-on-year increase of 70.31%, 160.49%, 105.87% and 345.26%, respectively.
　　Comments
　　The company’s net profit attributable to shareholders after deducting non-recurring items in 2021 is anticipated to increase rapidly compared with the same period in 2020.
　　1) Thanks to booming downstream demand for the company’s integrated circuits, and　as it has made every effort to ensure delivery of orders, the company’s special IC business has achieved rapid growth and contributed to sustainable and stable profits; the demand for special integrated circuit will rise by leaps and bounds during the “14th Five-Year Plan” period, and the market is expected to sustain rapid development.
　　2) With increasing profitability of the company’s intelligent security chip business, the company’s performance will see great improvements compared to the same period last year; with the gradual optimization of the industry’s competitive landscape and continued product innovation and upgrading, the business’ profitability is expected to further improve.
3) As the company’s jointly-run business is developing rapidly, it has made profits in the reporting period; with the acceleration of domestic substitution (domestic substitution means using home-made products to replace foreign ones as the former becomes better and better), PangoMicro is embracing a bumper period.
　　Earnings forecast and investment recommendation We revised its earnings forecasts according to the latest announcement, and estimated its net profit attributable to shareholders to CNY 2.001 billion in 2021, CNY 3.026 billion in 2022, and CNY 4.239 billion in 2023 and its EPS to CNY 3.3, CNY 4.99 and CNY 6.99, implying a price-to-earnings ratio to be 67, 44.3, and 31.6, respectively.Reaffirm “Outperform”.
　　Potential risks
　　less-than-expected procurement demand for military products; slower-than-expected product R&D; trade frictions