HENGTONG OPTIC-ELECTRIC(600487)：BOOST IN RECURRING NET PROFIT;OVER RMB3BN IN BACKLOG ORDERS FOR MARINE ENERGY

　　2021 and 1Q22 results largely in line with market consensus
Hengtong Optic-Electric (Hengtong) announced its 2021 and 1Q22 results: In 2021, revenue grew 27.44% YoY to Rmb41.27bn. Specifically, overseas revenue surged 105.11% YoY thanks to rapid global expansion; attributable net profit and recurring net profit rose 35.28% and 70.29% YoY to Rmb1.44bn and Rmb1.36bn, largely in line with our expectations. In 4Q21, revenue grew 63.24% YoY to Rmb11.46bn; attributable net profit fell 35.82% YoY to Rmb121mn and recurring net profit surged 116.44% YoY to Rmb254mn, mainly due to loss on change in fair value of financial assets held for trading. In 1Q22, revenue rose 34.10% YoY to Rmb9.35bn mainly thanks to rising optical cable prices; attributable net profit and recurring net profit was up 30.26% and 60.17% YoY to Rmb344mn and Rmb311mn, largely in line with market consensus.
　　Trends to watch
　　Submarine cable leader likely to maintain its high market share following rush installations. In 2021, Hengtong’s revenue from the marine energy and communications business rose 73.56% YoY to Rmb5.75bn, with its gross margin (GM) up 3.77ppt YoY to 47.11%. In March 2022, the firm announced it won bids for projects in Shenquan and Jieyang in Guangdong Province and Ca Mau in Vietnam, bringing the value of orders on hand of its submarine cable and marine engineering business to over Rmb3.0bn by March. Hengtong offers world-leading 500kV cross-linked polyethylene (XLPE) insulated submarine cables, and boasts design and production capabilities of high-end equipment such as 500kV HVAC land and submarine cables and ±535kV HVDC land and submarine cables. In addition, the total length of submarine optical cables delivered by the firm exceeded 50,000km by end-2021. At present, the bids and contracts Hengtong has secured have amounted to Rmb2.2bn since 2021.
　　Smart grid business riding the policy tailwinds of carbon neutrality. In 2021, Hengtong’s revenue from smart grid business rose 30.09% YoY to Rmb17.0bn, with a GM of 13.34%. China’s carbon neutrality target has accelerated the construction of ultra-high-voltage (UHV) power grid. The firm continued to ramp up its high value-added products such as high voltage power transmission cables and special cables. As a result, it secured Rmb7.5bn worth of land cable orders on hand by March 2022.
　　Optical communications business to benefit from price increase. In 2021, Hengtong’s revenue from optical communications business remained stable at Rmb6.25bn (up 4.82% YoY) despite plunging product prices. However, multiple industrywide negatives in 2021, such as falling prices of optical cables, dragged its GM down 7.46ppt YoY to 15.21%. Looking into 2022, we expect revenue and GM of the firm’s optical communications business to benefit from an uptrend in optical cable price boosted by China Mobile’s tender invitations, and government and municipal telecommunications projects over the long term.
　　Financials and valuation
　　We keep our 2022 earnings forecast unchanged, and introduce our 2023 net profit forecast at Rmb2.76bn. The stock is trading at 11.0x 2022e and 8.4x 2023e P/E. Given lower risk appetite in the market and median of sector valuation, we cut our TP 10% to Rmb16.10, implying 18.0x 2022e P/E and offering 63% upside. Maintain OUTPERFORM.
　　Risks
　　Uncertainties in policies for wind power industry and/or prices of optical fiber and cables.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。