Since 2020, the construction of 5G base stations in China has entered a rapid explosive period. Recently, the application for listing on the Science and Technology Innovation Board of Jiangsu Canqin Technology Co., Ltd. (hereinafter referred to as "Canqin Technology"), a domestic 5G industry chain upstream component supplier, was accepted. The company is mainly engaged in the research and development, production, and sales of microwave dielectric ceramic components, and is the world's first manufacturer to mass produce 5G dielectric waveguide filters. It is worth mentioning that Huawei, as a global leader in 5G infrastructure construction, has emerged among the company's shareholders and customers, and almost determines the company's performance growth.
The prospectus of Canqin Technology is going public this time, and the company plans to raise 3.836 billion yuan to invest in the new Canqin Technology Park project, the expansion of 5G communication ceramic dielectric waveguide filter project, and supplementary working capital. The gross profit margin of the first mass-produced 5G dielectric waveguide filter far exceeds that of its peers. The use of MassiveMIMO technology in 5G mobile communication base stations has led to an increase in the number of RF channels, leading the filter to a path of miniaturization, lightweight, and low-cost. Replacing traditional metal cavity filters with dielectric waveguide filters has become one of the mainstream technical solutions for constructing 5G macro station RF units. Microwave dielectric ceramic components have ushered in a period of rapid development in the 5G era. The company's main product, dielectric waveguide filter, is one of the core RF devices of 5G Acer Station, which has many performance advantages such as high quality factor (Q value), low insertion loss, low temperature drift, small size, lightweight, and low cost. As the global mobile communication industry rapidly enters the 5G era, the market demand for 5G dielectric waveguide filters is showing explosive growth.
The company's products are mainly divided into four categories by function, including filters, resonators, antennas, and low intermodulation passive components, with thousands of product models. From 2017 to 2019, the company achieved operating revenue of 120 million yuan, 271 million yuan, and 1.408 billion yuan, with year-on-year growth rates of 125.18% (2018) and 419.29% (2019), respectively. Among them, the company's filter operating revenue grew rapidly, accounting for 47.05%, 71.96%, and 95.45% of revenue, respectively. The main product is dielectric waveguide filters. From the profit side, product differentiation makes the gross profit margin higher, so the company's net profit increased rapidly. The company's net profit attributable to the parent company was 28.5564 million yuan, 57.6291 million yuan and 703 million yuan, respectively, with year-on-year growth rates of 101.81% (2018) and 1119.19% (2019). From the perspective of profitability, due to differences in product structure, technological processes, and cost advantages of large-scale production. The gross profit margin of the company is higher than that of comparable companies in the same industry. Selecting Wuhan Fangu, Dongshan Precision, Chunxing Precision, Dafu Technology, and Beidou Xingtong as comparable companies in the same industry, the average gross profit margin of communication business in 2019 was 24.57%, far lower than Canqin Technology's gross profit margin of 67.77%, indicating a high market recognition of the company's products. As the world's first mass-produced manufacturer of 5G dielectric waveguide filters, the company has benefited from the rapid growth period of 5G base stations, with significant revenue and net profit growth. Currently, the growth trend is far from stopping. What is the future growth situation? According to the prediction of Guoxin Securities, the construction volume of 5G base stations in China will maintain growth in the next 2-3 years, and the total construction volume of 5G base stations will reach 6.53 million from 2019 to 2026. As of June 6, 2020, the construction scale of 5G base stations was 258000, accounting for only 3.95%. Relying on a large customer and shareholder, Huawei Shadow Canqin Technology is located upstream in the 5G industry chain, with downstream mobile communication equipment manufacturers. The company has delivered applications in large quantities to multiple communication equipment manufacturers. The company's main customers are customers H, CommScope Communications, Rosenberg, China Electronics Technology, Datang Mobile, etc. It can be seen that the company deliberately omitted the name of a major customer in its prospectus. The prospectus shows that in the domestic market for 5G base station construction, customer H currently holds a large share. According to the 2020 5G Phase II wireless network main equipment centralized procurement bidding results announced by China Mobile at the end of March 2020, customer H obtained a large share, winning a total of over 132800 stations, accounting for 57.25%. In addition, Huatai Securities' "5G Base Station RF Novice, Waiting for Ceramic Release" shows that Huawei's main equipment manufacturer selects ceramic media for base station filter technology. So it is not difficult to see that customer H is Huawei. During the reporting period, the operating revenue of H and other enterprises under the same control accounted for 20.67%, 50.87% and 91.34% respectively, with a high customer concentration ratio. For Canqin Technology, Huawei, which occupies half of the 5G infrastructure, is undoubtedly a cool tree. In addition to its presence among major clients, Huawei also entered Canqin Technology's shareholder list on the eve of its IPO. Hubble Investment is a wholly-owned subsidiary of Huawei Investment Holding Co., Ltd. On April 29, 2020, Hubble Investment signed the "Jiangsu Canqin Technology Co., Ltd. Investment Agreement" with all shareholders of the company, agreeing to acquire 13.75 million shares held by the issuer's controlling shareholder Canqin Management for RMB 110 million, with a face value of RMB 1 per share. After the equity transfer is completed, Hubble Investment holds 4.58% of the issuer's shares.