China Mobile's IPO was officially approved, and the three major operators will soon win the A-share. The funds raised by China Mobile will be used for 5G boutique network construction projects, cloud resource new infrastructure construction projects, Gigabit Zhijia construction projects, smart middle office construction projects, new generation information technology research and development and digital intelligence ecological construction projects.
As the basic component of the physical layer of optical network, optical fiber cables will usher in new development opportunities driven by operator investment. As one of the three major operator suppliers, Changfei Fiber has once again attracted market attention.
Recently, Morgan Stanley published a research report pointing out that the recovery of smart phones, lens upgrades, fiber prices and gross margin improvements will be the theme of 2022, and Damo will also raise the H-share rating of Changfei Fiber from "synchronized with the market" to "overweight", and the target price will be raised by 9.38% from HK$16 to HK$17.5. Damo believes that the cycle of fiber price increase has arrived, and it is expected that the company will benefit from favorable market conditions, better operational efficiency and integrated vertical model in 2022, which can make its profitability have a positive surprise. Damo expects net profit to reach 1 billion yuan in 2022.
Show "Muscle"
Recently, the company announced that it intends to sell optical fibers, optical cables and provide project construction services to CEFC China and its subsidiaries, with a maximum transaction amount of 150 million yuan for the sale of goods and services, and a maximum transaction amount of 100 million yuan for the purchase of commodities; at the same time, it intends to purchase communication equipment products from CEFC China and its subsidiaries, Shanghai Nokia Bell and its subsidiaries, and the maximum amount of purchase commodity transactions is 100 million yuan.
The amount of money involved in this purchase and sales agreement is not very large, but it makes Changfei Optical Fiber Show a little "muscle". CEFC China and Nokia Bell Shanghai both have certain market positions and advantages in the communication equipment industry, and the key two are also related parties of Changfei Fiber. CEFC China holds 23.73% of the shares of Changfei Optical Fiber, which is the same as the two important shareholders of The Netherlands Drachcom, Ma Jie, chairman of Changfei Optical Fiber, holds the position of director and senior management of CEFC China, Mr. Guo Tao, director of CeFC China, holds the position of senior management, and Ma Jie, chairman of Changfei Fiber, is a director of Shanghai Nokia Bell.
Based on the communication industry, Changfei Fiber is the world's largest supplier of optical fiber preforms, optical fibers and optical cables, and is also one of the few companies in China that can develop and produce optical fiber preforms, optical fibers and optical cables on a large scale, and is the only one in China's optical fiber and cable industry and the first A+H listed enterprise in Hubei Province.
The company has optical communication related products and services such as rod fiber cable, integrated wiring, optical module and communication network engineering. Since 2016, the company's "bar fiber cable" market share has ranked first in the world for many years.
Preforms are used to pull optical fibers, which is an important upstream raw material in the industry, and the quality and performance of optical fiber preforms can directly affect the quality and performance of optical fibers and optical cables. Optical fiber is the main component of optical fiber cable. Optical cables are generally used in the construction of communication networks of telecom operators, and the core customers of optical cable services are telecom operators.
The company's downstream customers mainly have three state-owned telecommunications operators, and their demand accounts for about 2/3 of the domestic fiber optic cable demand. In addition to the operator market, driven by the large-scale construction of data centers, the demand for multi-mode optical fiber products has also increased steadily; in addition, driven by factors such as communication networks and smart grid construction, the market demand for special optical fiber products such as bias-preserving optical fiber and dispersion compensation fiber used in optical devices, power, sensing and other fields has maintained rapid growth. Changfei is also a global leader in related fields such as multimode fiber and special fiber.
It can obtain a stable customer base of the three major operators, thanks to the technical strength of Changfei Fiber. The company independently mastered the three mainstream optical fiber preform preparation technologies of PCVD, OVD and VAD, and has successfully realized industrialization, and is one of the few enterprises in the industry that can produce optical fiber preforms through three processes at the same time.
Compared with other fiber preform production processes, the PCVD process has many advantages such as more accurate refractive index distribution control and greater processing flexibility, while the VAD/OVD process helps to improve the manufacturing efficiency of fiber preforms, reduce the level of fiber attenuation and production costs.
Demand is under pressure in 2018-2019
As the "blood vessel" of the communication industry, the development of optical fiber and cable is not invincible. Since the second half of 2018, the shrinking demand of telecom operators has been coupled with the release of the previous expansion of production capacity, which has adversely affected the supply and demand relationship of the industry, which in turn has led to a step-by-step decline in the average unit price of optical fiber and cables at home and abroad, and the optical fiber and cable industry has entered an adjustment period.
Specifically, in the second half of 2018, due to the peak of the previous network construction and the 5G scale laying has not yet been opened, customer demand has turned weak, which in turn led to a decrease of nearly 50% in the centralized procurement announcement of ordinary optical cable products by major domestic telecom operators in the first half of 2019. In the centralized procurement carried out by operators in the second half of 2020, the average price of ordinary optical cables further decreased by about 30%.
At the same time, due to the relatively low elasticity of manufacturing costs, the rapid decline in unit prices has formed a large squeeze on the profit level of the industry. This can be seen from the performance trend of Changfei Optical Fiber in 2019 and 2020.
In the face of the pressure of the adjustment period, Changfei Optical Fiber has exerted its international leading advantage in technology research and development and cost efficiency in its main business, and has made breakthroughs in the fields of diversification and internationalization.
The company's diversification mainly focuses on the construction needs of data centers and active optical cable products.
The rapid growth of data traffic has greatly driven the construction of big data centers and promoted the demand for related products and services. Data centers are another customer area of Changfei Fiber in addition to operators, and the transmission of internal data is mainly carried out by multimode fiber optic cable products.
In addition, at the moment of the metaverse concept fire, the status of the upstream supplier of Changfei optical fiber cannot be ignored. Its subsidiary, Changxin Shengzhilian, has independently developed and produced active optical cable products that have been applied to ultra-high-definition video, virtual reality, high-end medical equipment and other fields, including high-end CT medical equipment of Siemens, GM and other brands, as well as AOC cables used in virtual reality scenes, which have also been purchased by international mainstream VR equipment manufacturers.
At present, other products and services, including diversified products, have achieved rapid growth, and in 2020, the sector achieved revenue of 1.795 billion yuan, an increase of 83.13% year-on-year, outperforming optical fiber and optical fiber preforms, optical cables and other products.
In terms of overseas expansion, the company's overseas business revenue reached RMB2.103 billion in 2020, an increase of about 26.56% year-on-year, and reached 25.57% of the company's overall operating income. In 2020, the revenue of overseas communication network engineering projects reached 243 million yuan, an increase of about 304.9% over last year.
In 2021, the demand for fiber optic cables will recover more than expected
In 2021, the epidemic will be under control, the global economy will return to normal, and the construction of "double gigabit" communication networks represented by 5G and gigabit optical networks in China will continue to accelerate.
In 2021, national ministries and commissions have successively issued favorable policies such as the "Double Gigabit" Network Coordinated Development Action Plan (2021-2023) and the "5G Application "Sail" Action Plan (2021-2023)". The policy requires that in three years, a "double gigabit" network infrastructure covering urban areas and qualified townships and towns will be basically built, and fixed and mobile networks will generally have the ability to "gigabit to households". By the end of 2023, gigabit optical fiber networks will have the ability to cover 400 million households, with a port size of more than 10 million 10G-PON and above, and more than 30 million gigabit broadband users; 5G networks will basically achieve coverage of areas at or above the township level and key administrative villages; and 100 gigabit cities will be built to create 100 gigabit industry virtual private network benchmarking projects.
Driven by relevant policies, operators will continue to promote network infrastructure construction in the next few years, and optical fiber cables, as the basic composition of the physical layer of optical networks, will usher in new development opportunities.
At the same time, the understanding of communication infrastructure construction in overseas markets has been continuously improved, and the demand for optical fiber network construction has accelerated. With the trend of steady recovery in domestic and foreign industry demand, Changfei Optical Fiber is expected to achieve long-term sustainable development.
Morgan Stanley published a research report pointing out that smart phone recovery, lens upgrades, fiber optic prices and gross margin improvement will be the theme of 2022, and the order of stock selection is Transsion Holdings, Xiaomi Group, Changfei Fiber Optic Cable H Shares, ZTE H Shares, ANDD Electronics.
Damo also upgraded the rating of DF Fiber H shares from "synchronized with the market" to "overweight", and raised the target price by 9.38% from HK$16 to HK$17.5. Damo believes that the cycle of fiber price increase has arrived, and it is expected that the company will benefit from favorable market conditions, better operational efficiency and integrated vertical model in 2022, which can make its profitability have a positive surprise. Damo expects net profit to reach 1 billion yuan in 2022.
Author: Li Ying