Company Profile

NANJING QUANXIN CABLE TECHNOLOGY CO., LTD. is a China-based company principally engaged in the research and development, production and sales of anti-defense military optical cables and components, optoelectronic components, FC optical fiber bus switching systems, optoelectronic integrated equipment and heat transmission products. The Company's main products include fluorine plastic cables, polyolefin cables, other insulation cables and cable assemblies. The Company's products are mainly used in the five military fields of aerospace, aviation, shipbuilding, military electronics and weapons. In addition, The Company is also engaged in the design, assembly and production of water treatment equipment through its subsidiary. The Company mainly operates its business in the domestic market. (Source: Reuters)

Investment Highlights

QUANXIN CABLE TECHNOLOGY (QUANXIN/the company) is a privately-operated technology-based enterprise, principally engaged in the research and development, production and sales of optoelectronic transmission, network and control products and providing transmission system technology solutions.

Since its inception, QUANXIN has been taking national defense as its main business, focusing on electronic information field and taking domestic substitution as its target. Its multiple products have successfully been applied into national key projects and its products cover many a fields including aviation, aerospace, ships, electronics, transportation, civil aviation, 5G telecommunication, and engineering machinery.

With organic growth and M&A, the company focus advantageous resources on military optoelectronic transmission.

1) In 2020, the company completed its split with Changkang Environment Protection and focused on its main business.

2) QUANXIN has taken a 30% stake in Olinkphotonics to enhance its capacity in 2 military optoelectronic module, and stepped into the product sequence of 5G and data center.

3) In 2020, the company participated in the establishment of “QUANXIN Future Industrial Fund” whose scale is CNY 100 million, mainly focusing on investments in the company’s industrial chains and strategy orientations. 4) In August 2021, the company raised CNY 320 million via private placement, among which, CNY 313 million will be used for consolidating and improving the company’s cable and module production capacity and building FC optical fiber bus series products to create new profit driving forces.

The company furthers to build and improve the company’s long-term incentive scheme.

In 2020, the company launched a equity incentive scheme after two in 2016, granting limited stocks of 5.5386 million shares to 48 employees including the company’s directors, core managers and staff.

In 2020, the company’s ESOP got stocks of 3.75 million shares previously held by Mr.

CHEN Xianglou, the company’s controlling shareholders via block trading.

Cable is the “nerve” of high-end equipment which is in booming demand.

The military cable accounted for 1% of the whole machine in value and its market demand is estimated to reach CNY 17.5 billion in 2021~2030, with yearly average of CNY 1.75 billion; the rocket launching is speeding up, guided missile consumption pushed demand release, and military ship industry is expected to maintain high prosperity, making demand for cable in high demand.

As for civil cable, it is estimated that the market size is expected to reach CNY 74.1 billion in 2021~2040, with the yearly average of CN 3.7 billion.

SAIZHITECH has taken the lead in technology of China’s optical fiber bus.

FC bus technology has grown into an optical transmission technology for next aviation electronics network transmission standard, thanks to its high transmission speed, more compatible to multiple upper telecom agreements, and has gradually received wide application and development in military internet systems.

Earnings forecast and investment recommendation We revised its earnings forecasts and estimated its net profit attributable to shareholders to CNY 170 million in 2021,CNY 252 million in 2022, and CNY 341 million in 2023, its EPS to CNY 0.54, CNY 0.81, and CNY 1.09, implying a P/E ratio to be 34.2x, 23.1x, and 17.1x, based on the closing price on Feb. 10th. Maintain “Outperform”.

Potential risks

Intensified competition in aviation and aerospace; slower-than-expected new product expansion; price markup in raw materials