Sina tip: This is a research report column, which is only an analyst's personal views and opinions on a stock, not a formal news report. Sina does not guarantee its authenticity and objectivity. All effective information about the stock is subject to the announcement of the Shanghai and Shenzhen Stock Exchanges. Investors are respectfully advised to pay attention to the risks.

Duan Yingsheng Ping An Securities

original view

The company's three businesses soft magnetic, EMS, and equipment manufacturing were analyzed in depth. The vertical diversified relationship between the three businesses, EMS and equipment manufacturing, would grow rapidly at a rate of more than 40%. At the same time, magnetic materials grew steadily, ensuring that the company could grow at a rate of more than 30% in the past two years. At the same time, the prospect of additional issuance projects was analyzed, and the company was given a "recommended" rating.

Key investment points

The company's soft magnetic ferrite has maintained a growth of more than 20% and a gross profit margin of more than 25% through customer and product structure adjustment and fine production.

The company has been looking for new opportunities, implemented the vertical integration strategy, and developed towards the upstream equipment industry and downstream EMS under the condition of ensuring the main business.

The company's integration strategy with magnetic materials as the core can improve the company's ability to resist risks. At the same time, because the development speed of equipment manufacturing and EMS manufacturing is more than 40% faster than that of magnetic materials, this can improve the overall development speed of the company.

The company's additional issuance is also invested in these three areas, which significantly promotes the company's profitability.

In the Yangtze River Delta Economic Circle, the company fully enjoys the joy of regional economic growth and has obvious regional advantages.

In the next two to three years, the company's performance will grow significantly. Give a "recommend" rating.

Risk disclosure

The price of raw materials has risen.

Diversified operation has the problem of energy dispersion, which is easy to make the main business unable to stand out.

There is uncertainty whether the additional issuance of shares can be successfully completed.

1. Reasons for vertical diversification of the company - improving development speed

i. Basic Information and Capital Structure of the Company

The company has a registered capital of 439.152 million yuan, total assets of more than 2.1 billion yuan, net assets of more than 1 billion yuan, and 4500 employees (including subsidiaries, including 560 technicians).

The company is a national key high-tech enterprise, the largest export base of soft ferrite products in China, one of the top 100 electronic components enterprises in China, and the first listed company controlled by natural persons in China. The products are exported to Europe, America, Japan and other countries, and provide long-term product support for Siemens, Sony, Panasonic and other enterprises.

Last year, the revenue reached 945 million, including 640 million soft ferrite magnetic materials, accounting for 67%. Except for 19.94% of electronic surface mount products, other businesses did not exceed 10%, which is relatively scattered.

In order to improve the development speed of the company, the company has been trying to make vertical diversification. The company is positioned to provide manufacturing services, and diversification does not go beyond this category. The company has a large number of subsidiaries, and its main business looks messy except for soft magnetic. In fact, it extends the manufacturing of upstream equipment during the company's use of equipment. Nanda Zijin is a powder production line, and Tiantong Jicheng is mainly a press. These are equipment related to the company's magnetic material production, which enhances the enterprise's own competitiveness; In the supply of magnetic materials to downstream enterprises, the company found that downstream communication enterprises have demand for devices and modules, and manufacturing devices and modules can increase the added value of products, which in turn increases the company's research and development capabilities for magnetic materials, while extending EMS manufacturing services.

The company is mainly composed of three parts: soft ferrite production, upstream equipment manufacturing, and downstream EMS manufacturing services, including the production of electronic optical communication devices and modules. This integration strategy with magnetic materials as the core can improve the company's risk resistance ability. At the same time, because equipment manufacturing and EMS manufacturing are developing faster than magnetic materials, this can improve the overall development speed of the company, The company will be analyzed from three aspects below.

2. Soft ferrite products

i. Introduction to Soft Ferrite Industry

Soft ferrite is a kind of functional electronic material, which has a history of more than half a century. As one of the pillar industries of information materials, soft magnetic ferrite materials have become an important part of the world's new material industry, and are widely used in communication, network, automatic control, liquid crystal display (LCD), military electronics and other fields. With the rapid development of the information industry, the application field of soft magnetic ferrite materials is still expanding, almost covering the whole machine Extension or components.

Soft magnetic ferrite is mainly divided into manganese zinc, nickel zinc (containing nickel, copper and zinc), magnesium and zinc. Among them, manganese zinc soft magnetic ferrite is the ferrite material with the largest amount and most widely used. Manganese zinc soft ferrite materials are mainly divided into manganese zinc power ferrite and high permeability soft ferrite. The main application field of manganese zinc power ferrite is power transformer.

Ii. Rapid development of China's soft magnetic industry

The industry of soft ferrite materials and devices in China is developing rapidly. Influenced by domestic and international market demand, it is increasing by more than 20% every year. It can be expected that by the end of the 11th Five Year Plan period, the annual production capacity of soft ferrite in China will need to reach more than 300000 tons to meet the demand for soft ferrite in domestic and foreign markets.

China's soft magnetic industry has become an influential industry in the world, mainly because it has solved two problems, namely, process technology and equipment investment. The most important driving force for the rapid development of the soft magnetic industry is the cost and application industry chain.

In terms of cost advantages, China has huge advantages in labor, land, water and electricity, resources and policies. In addition, China is also one of the largest producers of iron phosphorus, iron red, manganous oxide and other raw materials in the world, and has obvious advantages in obtaining the main raw materials of magnetic materials.

The downstream industry of soft ferrite materials is booming in China, and the global complete machine manufacturing is transferred to China, providing huge market demand space for Chinese soft ferrite. Soft ferrite materials are the main supporting products of various electronic products, and the industrial chain involves all aspects of electronic products. Both consumer household appliances and industrial complete machines, such as computers, communication equipment, automobiles, and the national defense industry are inseparable from soft ferrite materials.

1. Competitors

As the company is one of the largest soft magnetic manufacturers in China and even in the world, the company's production capacity has reached 30000 tons, and there are few competitors at this level. Compared with TDK, the company has a big gap in magnetic material formula and precision production process. TDK's production capacity is only 25000 tons, and its sales volume is much higher than that of Tiantong. The unit price of TDK's high-end products (high performance, consistency, dimensional accuracy, etc.) is much higher than that of Tiantong, which is an example for the company. The number of soft ferrite manufacturers in China is constantly increasing, coupled with the continuous expansion of old enterprises, so the production of soft ferrite in China is growing relatively fast, but the competition mainly comes from some small-scale manufacturers of new entrants, who produce low-grade products, which does not pose a threat to the company.

2. Substitutes

The substitutes for soft ferrite are amorphous and piezoelectric ceramics, but the products are still in the laboratory stage. In the future, due to the price and market advantages, the substitutes for soft ferrite pose little threat.

3. Potential entrants

This is the most sensitive factor in the industry. The magnetic material industry is in an expansion period in the Chinese market, so it attracts many potential entrants. These barriers include:

Economies of scale of enterprises in the industry. The magnetic material industry has a strong scale requirement. The production must reach a certain amount to make a profit. This entry barrier varies from high to low. The growth of magnetic material market demand is about 15% every year. In addition, the output of developed countries such as Japan, Western Europe, the United States and other countries is shrinking year by year, but the industry continues to shift to developing countries in Southeast Asia. Therefore, the magnetic material industry in China is in the development stage, With the advantage of low labor costs, the barriers to entry will become lower. But at the same time, because of high energy consumption (the national power shortage will continue), and the production capacity needs to be on a certain scale, the barriers to entry will become higher. The input-output ratio of the industry is only 1:1.2. The industry needs to achieve an annual sales revenue of more than 30 million yuan before it begins to take shape. For new entrants, it needs to invest nearly 25 million yuan, Therefore, its exit cost is also high.

The technical obstacle to entering the magnetic material industry mainly lies in the R&D and manufacturing of soft magnetic materials, especially high-grade soft magnetic materials, which have a high technological content and belong to technology, capital and labor intensive industries. Any downstream enterprise using soft magnetic cores must go through project verification, scientific research and development, pilot scale, pilot scale production A series of processes, from technology identification to final industrialization, need to invest a lot of money and take a long time. They have high requirements for talents, equipment, technical level, etc., and need to constantly carry out technological innovation to improve the product grade, accelerate its industrialization process, so as to maintain the competitiveness of the market. Especially after decades of development, it will be more and more difficult to enter the production of high-grade soft magnetic materials in the environment where the degree of monopoly of each market segment has increased.

4. Supplier's power

Suppliers have a great influence on the company. This year, the number of material prices in China has been rising, of which the rise in the price of raw materials is the first. In the magnetic material industry, all manufacturers have to face the cost pressure brought by the rise in the price of raw materials. However, the situation of various raw materials of soft magnetic is different. The raw materials of iron oxide are sufficient, and there are many manufacturers, with limited increase; The price of manganese oxide has more than doubled due to the price increase of manganese, and the suppliers are very concentrated and strong. In the face of the rising price of raw materials, the magnetic material manufacturers have no bargaining power, and even have a passive situation of paying before picking up. As a manufacturer of magnetic materials, it has to dig potential from inside and digest the cost pressure brought by the rise of raw materials.

5. Power of buyers

The buyer's influence on the industry mainly depends on the pricing and bargaining ability of the buyer and the enterprises in the industry. The following reasons have a direct impact on the bargaining between the buyer and the seller.

The degree of product differentiation of enterprises in the industry. How to differentiate magnetic materials in the same level of products is product performance, product appearance, size and consistency. This is one of the reasons why the price of Japanese TDK is always higher than that of Chinese products in the international market. Therefore, in the soft ferrite industry, only by comprehensively improving the product quality, enterprises will have a strong bargaining power.

The buyer's sensitivity to price, if the raw materials account for a large proportion of the customer's product cost, or the raw materials do not matter to the customer's overall quality, or the customer's marginal profit is very low. Then the customer may be very sensitive to the price.

The buyer has the degree of information about the cost structure of the industry enterprise. The more the buyer understands the industry cost information, the stronger the bargaining power.

The concentration degree of the buyer and supplier industries. If the supplier can only sell products to a few customers, then the buyer has a greater negotiating advantage.

Because of its large scale, the company is in a leading position in the industry and has a greater influence on buyers. Moreover, the company has selected high-end customers who are not sensitive to prices in Europe, America and Japan, and is in a strong position in price control.

It can be seen that the current magnetic industry of the company is highly competitive and generally attractive.

Iv. Competitive advantages of the company

Large capacity and scale advantage

The company has 56 manganese and zinc production lines, 13 bell jar kiln production lines and 6 nickel and zinc production lines. It has reached the production capacity of 45000 tons of powder and 30000 tons of magnetic core, reached the qualification rate of 98%, the yield rate of more than 95%, and the comprehensive utilization rate of powder is more than 80%. Able to meet the needs of large customers with short delivery cycle and large delivery volume.

The company has a good customer structure

The soft magnetic industry where the company is located reached its peak in 2000, and then with the recession of IT and communication industries, the price of the company's products fell by 2/3. In difficult circumstances, the company relies on changing customer structure, expanding scale, improving capacity, and using scale to offset the pressure of product price decline.

The company's customer structure is changing from low-end to high-end. The first customers are mainly domestic customers and gradually turn to Taiwan customers. Now the proportion of Japanese and European and American customers is gradually increasing, and now accounts for 40-50% of sales. Taiwan's customers account for 30% of sales and 50% of production capacity, This has a lot to do with the low price of Taiwan customers' products. The company is gradually adjusting its customer structure and increasing the proportion of high-end products.

Application of fine management

The company highly esteems the production mode of Japanese enterprises to strive for perfection. In order to achieve refined management and improve management level, the company spent 10 million yuan to cooperate with Hitachi to develop the production management software WMS and drive industrialization through informatization.

WMS is the abbreviation of Warehouse Management System, which is not only the management of warehouse, but also regards the production line as a flowing warehouse. It solves the problems of data collection, sorting and processing in the process of turning powder into solid, solves the shortcomings of traditional ERP software that cannot accurately measure powder, and can reduce the number of semi-finished products in the production line and reduce the cost, Finally, it can reduce the cost.

The company is becoming the standard setter of China's soft magnetic industry

In the world manufacturing industry, there is a rule called "standards are king". The Soft Ferrite Material Branch of the National Technical Committee for Standardization of Magnetic Components and Ferrite Materials was settled in Tiantong, and the Zhejiang Technical Committee for Standardization of Ferrite Materials was officially listed in Tiantong Holdings Co., Ltd. Haining Soft Magnetic Industry has completed a key layout in the field of standardization construction, winning more chips for it to break the monopoly of international giants in standard formulation for a long time.

At present, the standards of magnetic materials in China are relatively backward and can not meet the changing needs of the market. Especially with the continuous extension of the product field, the requirements for the environmental temperature and reliability of products are becoming higher and higher. At present, there is no national standard or industrial standard to refer to in China. The material performance and product performance indicators are mainly based on the samples of foreign leading magnetic material enterprises, which is very unfavorable for domestic magnetic material manufacturers to participate in market competition.

Tiantong's ability to take on this task is closely related to the company's first-class software and hardware facilities and its emphasis on research and development. The company has a provincial high-performance soft magnetic development center, a provincial technology center, the first soft magnetic localization model line in China, the most advanced pilot production line in China, and the task of development and technical transformation of key national projects such as the national "863" plan.

Zhejiang Haining soft magnetic material industry cluster, led by "Tiantong", has gathered 25 soft magnetic material manufacturers, and has become one of the largest soft magnetic product production bases in the world. As a part of Jiaxing's "National Electromechanical Components Industrial Park", this industrial cluster was recognized as the "National Torch Plan Haining Soft Magnetic Material Industrial Base" in 2003, becoming a national high-tech characteristic industrial base.

v. The company's operating policy of cost control

In the face of rising raw material prices, power shortages and price increases, the company adopts the business policy of reducing costs by all means and increasing efficiency from the inside.

First of all, efforts were made to reduce the production cost, making full use of magnetic core grinding and processing and producing high-quality powder with lower quality raw materials, which effectively reduced the material manufacturing cost.

Secondly, efforts should be made to improve the product qualification rate, reduce the scrap rate, maximize the output rate of raw materials, and reduce waste.

Third, strengthen market analysis and plan formulation, pursue the goal of maximizing gross profit, reasonably adjust the product structure and customer classification, give priority to ensuring the production of products with good gross profit, and give priority to ensuring the production of customer orders with high gross profit, good reputation, large scale, stability and good prospects, and optimize the economic benefits of enterprises in planning and regulation.

Fourth, we have implemented "standardization, process, digitalization and standardization", with reasonable and clear processes, accurate data, and standardized and smooth procedures. We have truly achieved the goal of "increasing income and reducing expenditure, and making careful calculations", so as to achieve efficiency and cost reduction through management.

Vi. Measures for manganese price rise

Manganese tetroxide is an important component of manganese zinc soft magnetic ferrite. There are about 10 domestic enterprises producing manganese tetroxide, and China's production capacity has reached the first in the world, with an annual output of about 90000 tons. The main production and research unit is Changsha Mining and Metallurgy Research Institute（ Jinrui Technology Co., Ltd.), Maanshan Mining Research Institute, Changsha Metallurgical and Mining Materials Company (Hunan Special Metal Materials Factory) Sinosteel Tianyuan Science and Technology, Hunan Chemical Reagent General Factory, Guizhou Songtao Manganese Mine, Guangxi Daxin Manganese Mine, Guizhou Fanjingshan Manganese Industry Co., Ltd., among which Changsha Mining Institute is the largest manufacturer. Since this year, the price of domestic electrolytic manganese market has risen significantly, which directly led to the price of Mn3O4 rising from 10800 yuan/ton in the first quarter of this year to nearly 28000 yuan/ton, the highest price. Now there is a certain decline. As one of the main raw materials of Mn Zn ferrite, Mn3O4 accounts for about 23% of the weight of soft magnetic power ferrite materials.

Faced with the severe situation of rising prices of raw materials, Tiantong Holdings, Dongci, Xinkangda and other domestic representative enterprises of soft ferrite took action one after another. They spontaneously organized discussions and exchanges in Nanjing and Shanghai, formed a broad consensus on improving product technology, adjusting product structure, raising product prices and other aspects, and passed the Minutes of Nanjing Meeting of Ferrite Core Manufacturers And Minutes of Shanghai Meilan Lake Conference. The company will moderately increase the price of its products according to the situation, and the range will not exceed 15%, which will play an important role in the stability of the company's gross profit.

The company considers hedging the risk of manganese price rise by participating in the company producing manganese or purchasing manganese ore.

　　III. EMS: Manufacturing of electronic optical communication devices and modules

i. Tiantong Jingdian is an EMS electronic manufacturing platform

Tiantong Jingdian was established in the second quarter of 2006, Tiantong Shares The company holds 98% of the equity and the management team holds 2% of the equity. It is mainly engaged in the manufacturing of mobile communications, communication systems, LCD, automotive electronics and other components. In 2006, there were 6 production lines, and in the first quarter of 2007, there were 3 more, a total of 9 production lines, and 26 imported high-speed SMT equipment.

EMS introduction:

EMS (Electronic Manufacturing Services) refers to electronic manufacturing services. The services provided by EMS companies include printed circuit board (PCB) mounting, product design, engineering, testing, material procurement and many other contents. The EMS business model is the most popular business model in the global electronic manufacturing industry at present, and is emerging from the global electronic product manufacturing outsourcing business. The traditional production and sales mode is that brand manufacturers directly purchase components to produce products and sell them under their own brands. In order to reduce production costs and strive for faster product launch time, brand manufacturers outsource product production and some design processes to other enterprises, thus giving birth to the EMS business model.

As the operation mode becomes more and more mature, the global EMS business scale grows rapidly and the division of labor becomes more and more detailed under the dual effect of the growth of global electronic manufacturing business and the increasing proportion of outsourcing year by year. In the past ten years, a group of enterprises specializing in EMS business, such as Foxconn, Weichuang, Sihai, Xudian, have rapidly grown into international enterprises with strong competitiveness, and have entered the ranking of the world's top 500 enterprises. The global industrial division and market development in recent years show that EMS has become a mature business model with broad market development space. There are some newly listed SeaStar , the market performance is remarkable.

Making use of the advantages in magnetic materials, we cut into the manufacturing of communication modules:

Last year, the company's business was called electronic surface mount products, and its sales reached 170 million yuan. This year, its positioning has changed. Unlike ordinary EMS manufacturers, the company's EMS does something and does not do anything. Instead of simply doing everything, it uses the company's advantages in magnetic materials to cut into the manufacturing of communication modules, At present, the company has provided the communication module to Shanghai Bell, and two lines are helping Bell do it in the form of packaging materials. ZTE Huawei and Huawei are already using the inductance coil and other components of the company, the module is on trial, and Motorola is also negotiating.

At the same time, the company is also doing the transformation of magnetic electronic components. For example, the company is developing the transformation of replacing five magnetic components with one magnetic component on the module, which can reduce the area of each board and greatly save costs. These are things that ordinary EMS manufacturers can't do. Huawei, ZTE and other communication giants are also interested in the company, so they will hand over module manufacturing to the company.

At present, the company's production line is not only producing modules for Bell, but also doing some mobile phone business, laying the foundation for the manufacturing of communication modules. This year's sales are expected to exceed 300 million, an increase of more than 45%. If the company wins the manufacturing orders of these communication giants, the growth of this area will reach 100%, which is precisely based on the company's advantages in the soft magnetic industry.

Ii. Manufacture of optical communication products

The production of optical communication products cannot be separated from the EMS of Tiandian

Most optical communication products cannot be separated from magnetic materials, especially high-speed optical fiber access families. At the last kilometer, magnetic devices are used to convert high-speed optical fibers into low-speed coaxial and copper wires. With the development of cable TV digitalization, the market will grow explosively. The company is involved in the production of optical communication products through Bochuang Technology, but large-scale manufacturing is inseparable from the EMS of Tiantong Jingdian.

Introduction to Bochuang Technology

Bochuang Technology Company under the company was founded in the third quarter of 2003 Eastcom It is a joint venture jointly founded by the Chinese investor led by the Chinese investor and a group of professionals in the American communications industry. It is mainly engaged in the R&D and manufacturing of optical communication passive products and communication broadband access units, and is committed to the large-scale application of planar waveguide integrated optical device (PLC) technology. It has strong strength in the optical design, testing and device packaging of optical waveguide devices, and has the world's leading high-efficiency device production process, Its proprietary optical chip finishing technology can greatly improve the yield and performance of products, and effectively realize the hybrid integration of various passive and active components.

At present, Bochuang focuses on providing high-quality and low-cost terminal products and technical solutions for the fast growing FTTH market. Many products and devices launched for the FTTH market include planar waveguide splitters, wavelength insensitive couplers (WINCs), optical network units (ONUs), and the crucial packaging material fiber array. These products are characterized by low loss, good uniformity and small size, and have passed strict reliability tests. Some of the company's products have successfully entered the Japanese market.

In the field of high-speed broadband and high-definition digital TV network access unit, the company has sufficient technical reserves and products

Driven by users' higher speed data services, such as IPTV, HDTV and VOD, the increasingly prosperous tripleplay service: integrating voice, data and video services, is driving service providers to accelerate the deployment and upgrading of broadband networks, and driving service providers to upgrade their access networks through optical fiber. The annual growth rate of the global optical access network market will reach more than 15%.

FTTH is called the "last mile" problem. At present, the transmission of Internet information relies on optical fiber to transmit along the trunk network between cities and within cities. The "last kilometer" from the trunk network to the community and family is transmitted by copper wire and coaxial instead of optical fiber. The bandwidth of copper wire is only about 1 to 2 megabytes, while the bandwidth of optical fiber can reach as much as 100 megabytes. Fiber to the home enables the bandwidth of access terminals to increase rapidly, and becomes the best way to achieve the "triple play" of TV network, voice network and data network. Users can access the Internet, make calls, and watch digital TV through one fiber without interference.

The company pays close attention to high-speed broadband and high-definition digital TV network access units, and has sufficient technical reserves and related products in this regard, which can provide xDSL splitters (core components in copper access), ONUs (core components in optical access) EOC (core component in coaxial line access) and other access products provide comprehensive solutions according to market demand.

The company does not only pursue advanced technology, but is market-oriented to ensure that high, medium and low series of products are available. Taking xDSL as an example, xDSL has a large market for old network transformation. xDSL is the general name of DSL (Digital Subscriber Line), which means digital subscriber line, and is a point-to-point transmission technology using copper telephone line as the transmission medium. Its essence is a series of super modems, whose transmission rate is far higher than that of ordinary analog modems, and even can provide a megabyte transmission rate 300 times faster than that of ordinary analog modems. XDSL includes HDSL (High Speed Digital Subscriber Line), SDSL (Symmetric Digital Subscriber Line), ADSL (Asymmetric Digital Subscriber Line), VDSL (Very High Bit Rate Digital Subscriber Line) and other technologies. DSL technology supports symmetric and asymmetric transmission modes on the subscriber loop of the traditional telephone network (POTS), and solves the "last mile" transmission bottleneck problem that often occurs between network service providers and end users. Since the telephone subscriber loop has been laid in large numbers, how to make full use of the existing copper cable resources and achieve high-speed access through copper twisted pair has become the focus of research in the industry. Therefore, DSL technology has quickly received attention and has been widely used in some countries and regions.

4. Tiantong Jicheng is a platform for equipment manufacturing

Zhejiang Tiantong Jicheng Machine Manufacturing Co., Ltd. (ATE), which holds 75% of the company's equity, is the company's equipment manufacturing platform. The equipment industry is an industry encouraged by the state, which can promote the development of the company's soft magnetic industry and improve the company's competitiveness. The company's marketing slogan is Japanese technology and Chinese price. The development prospect of its products is very promising.

i. Joint venture with Mitsubishi Materials

The main product of Tiantong Jicheng powder forming press is the most pressing equipment used in the magnetic industry, and can be used for ceramic pressing and powder metallurgy. In order to improve the technical level, "Zhejiang Jicheng Yuchuan Machinery Co., Ltd.", a joint venture with Mitsubishi Material Technology Co., Ltd., is established. Japan Yuchuan is a subsidiary of Mitsubishi Materials and one of the most famous companies in the industry. The company has introduced all the software and related accessories from Yuchuan, initially forming the manufacturing scale of powder forming press, which can produce 6 tons, 10 tons, 20 tons, 40 tons, 60 tons, 100 tons and 200 tons of Yuchuan press in batches.

Tiantong Jicheng has received strong technical support from Yuchuan Company. Series of powder forming presses, such as S-type and IE type, are gradually recognized and favored by powder metallurgy, magnetic materials and ceramic products manufacturers at home and abroad, and are now moving towards a super tonnage of more than 300 tons.

Ii. Joint venture with Hitachi

Since the growth of the company's soft magnetic products is mostly in the growing market of LCD, the company is optimistic about the LCD industry, and Hitachi Plant Technologies, Ltd.) jointly established Jiaxing Tianri Industrial Equipment Technology Co., Ltd. to enter the manufacturing and sales of special equipment for manufacturing new flat panel display devices, special equipment for electronic industry, performance mounting equipment, storage and logistics management system equipment.

In the LCD industry, Japan, Europe and the United States are mainly in possession of property rights, upstream materials, equipment, etc., while Taiwan and South Korea are good at manufacturing panels and key components. As the second largest LCD manufacturer in Japan, Hitachi has a number of patented technologies, of which IPS and Super-IPS technologies are the LCD technologies developed by Hitachi, which are also the main types of LCD panels at present. At present, the main technologies of LG Philips, the world's largest LCD manufacturer, are IPS and S-IPS.

With the development of domestic LCD panel industry, the equipment market demand of LCD panel production line is growing. Hitachi saw the trend of LCD panel production line shifting to China, but because the equipment was too expensive, many domestic enterprises could not afford it, so they made it in China to reduce costs.

As a technology-based company, Hitachi is the second largest manufacturer of LCD production equipment in Japan. The reason why Hitachi chose Tiantong is to see the brand and marketing ability of Zhongtiantong, as well as the contacts and reputation it has accumulated in the industry for more than 20 years.

If Hitachi does not occupy this market, enterprises from Taiwan and South Korea will also occupy this fast-growing market, and the market of LCD panel equipment will grow rapidly for 3-5 years. Therefore, Hitachi and Tiantong should speed up production.

Less than half a year after its establishment, the company has obtained orders from Shantou Xinli, Shanghai Tianma, etc., and an order of 7 million dollars from Shanghai Radio and Television is also under negotiation. Although it was just assembly at the beginning, joint ventures can quickly enter the market and shorten the time for learning technology.

Iii. The acquisition of Haining Machine Tool Plant has improved the manufacturing capacity

On June 11, the company announced that Tiantong Jicheng had acquired Haining Machine Tool Plant, which would help Tiantong Jicheng improve its overall technical level and achieve Tiantong's goal of becoming bigger and stronger in the special equipment industry. Haining Machine Tool Factory, founded in 1952, has a machine tool production history of more than 50 years. It is one of the manufacturers designated by the former Ministry of Machinery to produce metal cutting machine tools, and is also a key enterprise in the mechanical system of Zhejiang Province. Haining Machine Tool Factory has been engaged in machine tool manufacturing and R&D and manufacturing of special electronic equipment, with a strong technical development force and a professional technician team.

5. Regional advantages of the company's industry

The company started from Haining, and its management headquarters is now located in Jiaxing. In order to attract high-tech talents, it also has a branch office in Shanghai.

The Jiaxing Science and Technology Industrial Park established by the company is subordinate to the National (Jiaxing) Electromechanical Components Industrial Park, which is located in Jiaxing Industrial Park, Zhejiang Province, known as the Golden Triangle of China. It is only an hour's drive from Shanghai, Hangzhou and Suzhou, and the transportation is extremely convenient. To ensure customer service and sales in the Pearl River Delta, the company also has an office in Shenzhen.

From the distribution of soft magnetic ferrite enterprises, the distribution of soft magnetic ferrite enterprises across the country is relatively unbalanced. With the regional development of China's economy, soft magnetic bases (accounting for 70% of the total), mainly in Haining, Dongyang and Nanjing, have been formed, supplemented by manufacturers in Shandong and Sichuan, which provide conditions for production, supply, marketing and processing, and reduce costs.

The customers in the Yangtze River Delta and the Pearl River Delta are mainly from Taiwan, Japan, Europe and the United States. Shandong's customer base is mainly Korean.

The customer base in Sichuan is mainly Chinese. But their customer groups also intersect, which is related to the regional distribution of customer groups.

The Yangtze River Delta and the Pearl River Delta have relatively strong technical advantages and equipment supporting service advantages. The main customer groups in the world are also distributed in these regions, taking advantage of time, place and people. It plays a stronger role in promoting the technology and management of enterprises.

6. Benefit analysis of new projects

i. 6000 tons of new high-frequency low distortion 3G communication and flat panel display manganese zinc magnetic core production line technical transformation project

Manganese zinc ferrite, which is used for 3G communication and LCD display, meets the needs of market development. With the continuous expansion of demand for 3G communication and LCD display, the demand for manganese zinc ferrite is also increasing, and the product market has broad prospects.

At present, the performance of manganese zinc ferrite products produced by the company is at the leading level in China and has reached the advanced level of similar products in the world. There has always been a long-term reliable user market in product sales, but it is unable to meet the growing needs of users due to the limitations of existing equipment. Therefore, the product sales market after this technical transformation is guaranteed, and the product market has broad prospects.

Ii. Technical renovation project of 1720 new high-speed broadband and high-definition digital TV network access unit product lines

It can form an annual production capacity of 15 million sets of high-performance xDSL separators (core components in copper access), 2 million optical splitters, 100000 ONUs (core components in optical access) and 100000 EOCs (core components in coaxial access).

With the development of broadband access market, the demand for xDSL separators will be very strong. The current price is 18 yuan per set. It is conservatively estimated that with the expansion of large-scale production, the price may decline, but the sales will reach more than 150 million yuan. With other optical splitters, ONU, EOC, etc., the sales will exceed 180 million yuan.

The production of this project will be mainly completed by Tiantong Jingdian, and because many magnetic devices will be used on xDSL, it will promote the sales of magnetic materials, further improve the company's industrial chain, strengthen the company's manufacturing capacity, and achieve sustainable development of the company.

Iii. Annual capital increase project of 500 sets of electromechanical special equipment

Among them, an annual output of 200 sets of LCD panel equipment has been formed, which is mainly manufactured by Jiaxing Tianri Industrial Equipment Technology Co., Ltd., a joint venture between Tiantong and Hitachi Plant Technologies, Ltd. Currently, there are orders from Shantou Xinli and Tianma, and the project is under negotiation with Shanghai Radio and Television. It is conservatively estimated that the average value of each equipment is more than 800000 yuan, which can bring 160 million yuan of annual sales revenue.

The other is the production capacity of 250 S series powder forming machines and 50 IE series powder forming machines. The difference between S series and IE series is the different pressing speed. Last year, the company sold 100 machines, with a sales volume of more than 50 million, and the sales volume of 300 presses will reach 150 million.

7. Profit forecast and valuation

Profit forecast

Assumptions for profit forecast are as follows:

In 2007/08, the company's EMS business and equipment business will grow rapidly, with a growth rate of no less than 40%;

In 2007/08, the company's soft magnetic business maintained steady growth;

In 2007/08, the gross profit of the company's main business remained stable;

The sales revenue growth of the company is basically synchronous with that of the industry.

Investment rating to "recommended"

After years of industrial layout and strategic adjustment, it indicates that the company has entered a new period of rapid growth. It is preliminarily estimated that the earnings per share in 2007 and 2008 will be 0.33 yuan and 0.42 yuan, with an annual growth rate of 47.2% and 29.0%. Based on the conservative PE ratio of about 30 times, the reasonable price in 2007 and 2008 will be 9.9 yuan and 12.6 yuan respectively. At present, the company's stock price is low according to the valuation level in 2007, and the investment rating is adjusted to "recommended".

　　VIII. Risk disclosure

The price of raw materials has risen.

Diversified operation has the problem of energy dispersion, which is easy to make the main business unable to stand out,

There is uncertainty whether the private placement can be successfully completed.

Sina statement: The content of this article is purely the author's personal view, only for investors' reference, and does not constitute investment advice. Investors operate accordingly at their own risk.