Third Quarterly Report of San'an Optoelectronics: Steady Growth of LED Chips

Business analysis:

The operating revenue maintained a rapid growth, and the LED street lamp was confirmed to be lower than expected: the company achieved a sales revenue of 980 million yuan in the third quarter, with a year-on-year increase of 118% and a month-on-month increase of 14%. The main reason for the further growth of sales in the third quarter was that the sales of concentrating photovoltaic products were about 230 million yuan, while the sales of LED chips were about 630 million yuan, basically maintaining a stable growth, The revenue recognition of LED street lamps is lower than expected, which slows down the profit growth.

The significant change in gross profit margin in the third quarter was due to the change in product structure, and the gross profit margin of LED chips was stable: the company's gross profit margin in the third quarter was only 18.8%, a sharp decline of 14% compared with 32.8% in the first half of the year. The decline was mainly due to the change in product sales structure in the third quarter, in which the sales scale of LED street lamp products with high gross profit rate was about 50-60 million yuan, The sales scale of concentrating photovoltaic products with negative gross profit is 230 million yuan. According to the estimation of revenue composition in the third quarter, the gross profit margin of LED chip products is maintained at a stable level of 17% - 18%, and the gross profit margin of LED chip business after material recovery is controlled at a normal level of about 30%.

Revenue growth in the fourth quarter will be further improved: the company is currently in stable mass production of about 110 MOCVD equipment. The company's sales of LED street lamp products in the third quarter were lower than expected. According to the contract, the company sold about 640 million street lamp products in 2012, and the sales of 50MW concentrating photovoltaic products will be confirmed within the year. Therefore, we expect the company's revenue recognition in the fourth quarter to be further accelerated.

The company's operating cash flow needs to be improved: in the first three quarters, the company's operating cash flow was - 227 million yuan, and the total amount of accounts receivable and notes receivable increased by 1.027 billion compared with the beginning of the year. Although 670 million yuan was notes receivable, at that time, considering the scattered and fierce competition of downstream LED packaging plants, we think the company has a certain bad debt risk.

Profit adjustment and investment suggestions:

Since the gross profit margin of the company's LED chip business has not recovered significantly, we adjusted the company's profit forecast from 2012 to 2014 to 0.65 yuan, 0.79 yuan and 0.97 yuan respectively. At present, the stock price corresponds to 19 times in 2012 and 16 times in 2013, maintaining the "overweight" rating.