Dongfang Cable (603606) Investment Value Analysis Report: Pure Submarine Cable Leads Benefit from Rush Installation

Dongfang Cable (603606) Investment Value Analysis Report: Pure Submarine Cable Leads Benefit from Rush Installation

Core point of view The company is a leader in pure submarine cables in the domestic market. The market demand began to accelerate with the rise of offshore wind power. Benefiting from the tightening supply in the industry and the improvement of competitive advantages, the company enjoyed both volume and price increases and strong growth momentum.

The company’s EPS for 2019-2021 is expected to be 0.

57/0.

75/0.

96 yuan (corresponding to PE19 / 15/11 times), the first coverage, given “overweight” rating and target price of 13 yuan (corresponding to 23 times PE in 2019).

   Both the land and sea cables are expanding at the same time.

The company is a leading company in the cable industry, with operations including land cable systems, submarine cable systems and offshore engineering.

The company started with a traditional land cable. Since 2005, it has transitioned into the field of high value-added submarine cables. It has taken the lead in achieving domestic breakthroughs in 110/220 / 500kV (including soft joints) submarine cables.9% increased to approximately 41% in 2019H1, and the product structure was significantly optimized.

At present, the submarine cable business has become the company’s core driving force for growth, and its scale has accelerated.

900 million yuan (+7 a year).

4%) and return to the net profit of mother 1.

80 ppm (ten years + 220%).

   Offshore wind power is rushing to install, and the demand for submarine cables is accelerating.

The price of a submarine cable is 3-7 times that of a land cable of the same specification, accounting for about 10% of the investment in a sea wind project.

The domestic sea breeze has accelerated its rise and entered the rush installation cycle. It is expected that the new installed capacity in 2019-2021 will reach 2/3.

5 / 5GW, corresponding to market space of 34/58/72 billion, CAGR of about 46%.

Due to the concentrated market structure of capital, regional location, technology, and qualifications in the submarine cable industry, the supply side is mainly Dongfang Cable, Zhongtian Technology, Hengtong Optoelectronics, and Han cable. There are four manufacturers, including Dongfang Cable and Zhongtian Technology.First echelon.

It is expected that the offshore wind power project will develop from offshore to offshore in the future. The large length of submarine cables, the key technologies of soft joints and comprehensive service capabilities are gradually prominent.Expected to benefit from the rapid growth of sea breeze rush equipment.

   Pure submarine cable faucet, solid competitive advantage.

The company’s submarine cable capacity industry ranks first, with a current corresponding output value of about 2 billion. The proportion of submarine cable business income continues to increase, benefiting from the rise of Haifeng’s performance and achieving highly flexible growth.

The company replenished order 2 from 2016 to 2019Q3.

2/13.

3/19.

6/17.

7 trillion, currently in the order of about 26 trillion, market share of about 32%, the existing submarine cable project contract qualification to strengthen the single capacity, orders continue to grow can be expected.

  With the tight supply of submarine cables and the concentration of 杭州夜生活网 competition, the company’s downstream costs have been distorted smoothly and benefited from price increases. The company expects that the gross profit margin of submarine cables in 2019H1 will exceed 40%, and both volume and price will rise.

In addition, the company plans to expand the output value of 2 billion submarine cables by 2021H1, and the market share will gradually increase under the condition of full orders.

  The company is leading the technology in the field of large lengths and flexible joints, and has built high technical barriers to maintain a stable competitive advantage and market share.

   Risk factors: The installed capacity of offshore wind power is less than expected, the submarine cable wins the bid less than expected, the price of raw materials changes, and the cost of offshore wind power drops less than expected.

   Investment suggestion: The company is a leader in pure submarine cable. The market demand begins to accelerate the volume with the rise of offshore wind power. Benefiting from tighter supply in the industry and enhanced competitive advantages, the company enjoys both volume and price increases, and strong growth momentum.

We forecast the company’s net profit to be 3 in 2019-2021.

7/4.

9/6.

30,000 yuan, EPS is 0.

57/0.

75/0.

96 yuan, corresponding PE is 19/15/11 times; referring to the valuation of comparable companies, the company is given a target price of 13 yuan (corresponding to 23 times PE in 2019).

Covered for the first time, giving “overweight” rating.