FHEC(SZ:000561) China Post Securities·2024-05-15 06:30Investment Rating - The report gives a "Buy" rating for the company, with a target price based on the expected performance and valuation metrics [5][34] Core Views - The company is a leader in military search and rescue equipment and is transitioning from being a device supplier to a system integrator, which is expected to enhance its market position [5] - The company's shortwave communication equipment is a critical battlefield communication tool, and its future growth is driven by new military aircraft deployments and retrofitting of existing ones [32] - The company's products, including shortwave communication, ELT, audio integration, and active noise cancellation devices, have broad application prospects in civil aviation and low-altitude economy [6][97] - The acquisition of Changling Technology is expected to expand the company's product line and enhance its service capabilities, contributing to revenue growth [33][122] Company Overview - The company, formerly known as Changling Co Ltd, underwent a restructuring in 2010 and shifted its focus to military products [15][40] - The company's main products include anti-jamming communication equipment, rescue and directional equipment, and digital intercom systems, which are widely used in military and professional communication fields [40] - The company's historical performance has shown steady growth, although it faced short-term pressure in 2023 due to a decline in gross margin [42] Financial Performance - The company's revenue in 2023 was 1.47 billion yuan, with a year-on-year decline of 8.11%, but it is expected to grow by 9.85%, 14.79%, and 19.76% in 2024, 2025, and 2026, respectively [9] - The company's net profit attributable to the parent company in 2023 was 52.34 million yuan, a year-on-year decline of 46.41%, but it is expected to grow by 67.78%, 31.57%, and 32.85% in the next three years [9] - The company's R&D expenses accounted for 16.68% of its revenue in 2023, reflecting its commitment to innovation [42] Business Segments - The company is a backbone enterprise in military shortwave communication, with its performance driven by new military aircraft deployments and retrofitting of existing ones [24][32] - The company's search and rescue equipment business is transitioning from single-device supply to system integration, with significant potential in multi-platform and multi-user integration [5][27] - The company's products, such as shortwave/ultra-shortwave radios and ELT, have broad application prospects in civil aviation and low-altitude economy [6][82] - The company's subsidiary, Hongsheng Technology, is engaged in the production of audio communication systems, while its subsidiary, Aikete, has significant potential in active noise cancellation technology [89][90] Acquisition of Changling Technology - The company plans to acquire 98.40% of Changling Technology, which specializes in radar navigation systems, with a transaction value of 1.147 billion yuan [21][44] - Changling Technology's main products include radio altimeters, Doppler radar navigation systems, and precision approach radars, with a revenue of 843 million yuan and a net profit of 59.7 million yuan in 2022 [33][116] - The acquisition is expected to enhance the company's product line and regional coverage, contributing to revenue growth [33][122] Industry Analysis - The military communication equipment industry is highly competitive, with key players including CETC 10th Institute, Tianjin 712, Guangzhou Haige Communication, and Shaanxi Fenghuo Electronics [26] - The company's shortwave communication equipment is considered a critical battlefield communication tool, with future growth driven by new military aircraft deployments and retrofitting of existing ones [32][59] - The company's search and rescue equipment business is expected to benefit from the increasing importance of battlefield search and rescue capabilities [70] Valuation and Forecast - The company's 2024-2026 net profit attributable to the parent company is forecasted to be 162 million yuan, 197 million yuan, and 243 million yuan, respectively, with a corresponding P/E ratio of 39x, 32x, and 26x [34] - The company's valuation is considered attractive compared to its peers, with a P/E ratio lower than the industry average [124]