Metaverse thunder strikes directly, can the leader Goertek soar?

Is GoerTek undervalued?

While the flower of new energy was still in full bloom, it was ignited by the listing of Roblox, the first stock of Metaverse, the acquisition of Pico by Toutiao’s 9 billion yuan, and the change of Facebook’s name to Metaverse. Metaverse seemed to appear in front of us with thunder. , Its marching style of “fast as the wind, Xu Rulin, aggression as fire, immovable as a mountain” also left a lingering impression on the market.

We have seen that the trend of Goertek’s shares in the past year is highly correlated with the trend of the Metaverse sector, and in recent months it seems to have caught the Metaverse express train. The price trend of GoerTek’s shares in the past year has not been smooth sailing. Affected by rumors of Airpods cutting orders, pessimistic expectations of fruit chains, and financial rumors, it has fallen from a high of 50 last year to 25 in March, and then returned to above 50. , And hit a new high. As of December 23, the total market value of Goertek has reached 184.481 billion yuan, ranking second in the electronic equipment manufacturing industry, with an industry average of 20.774 billion yuan; the price-to-earnings ratio (TTM) is 44.30, and the valuation level ranks in the bottom third. , The industry average is 58.70.

Metaverse thunder strikes directly, can the leader Goertek soar?

Is GoerTek undervalued? According to the valuation trend of Goertek, the current valuation is at the 50th percentile in the past 3 years, and it seems to be at the middle level in history. So where is the valuation space for Goertek in the future?Can the Metaverse concept fire bring new vitality to GoerTek, which has been on the Apple Airpods development express in the early years?

01 Metaverse and Goertek

(1) Metaverse

GoerTek shares are classified as the leader of the Metaverse concept stocks, so it is necessary for us to understand first, what is Metaverse? Is it a short-term theme or a long-term theme? Where is its imagination?

What is the Metaverse? Facebook founder and CEO Mark Zuckerberg believes: “Metaverse is a vision that spans many companies and even the entire technology industry. You can regard it as the successor to the mobile Internet.” Nvidia CEO Huang Renxun believes: “The real world and the The Metaverse is connected.” Kong Rong, chief analyst of Tianfeng Securities Global Technology, said that the Metaverse can be understood as a “3D version of the Internet.”

The term metaverse comes from the 1992 science fiction novel “Avalanche”. In the virtual world called Metaverse in the book, people can enter another world as a virtual avatar through a connected portal, and live a world that is different from the real world. Another life.

The Metaverse is based on the Internet, a virtual world based on the mapping of the real world that exists at the same time as the real world. It seems that it is not only the next generation of the Internet, but also the way of life of humans in the future. Its production has both the underlying logic based on philosophy and economic significance. It exists on the ever-increasing spiritual needs of mankind and brings the greatest satisfaction to mankind. Because it points to the future, it should not be limited to short-term hot spots.

From the perspective of human needs, the Metaverse is necessary for its existence. From the technical point of view, the concept of the Metaverse is not a bubble. It provides a condensed soil for the existing technologies.There is no single technology in the world called “Metaverse”, but it integrates and upgrades various existing technologies.

Metaverse thunder strikes directly, can the leader Goertek soar?

Today, when we look at Metaverse, we may still think that it is illusory and incredible, just like the development stage of new energy vehicles from 0 to 1, the state of the mobile Internet when it first appeared, just as you would not have thought of the world today 20 years ago. We also cannot imagine the ultimate state of the Metaverse. Zhao Xiaoguang, vice president of Tianfeng Securities and director of the research institute, said that his ultimate perspective would be “digital universe, interconnection of everything, and no boundary between virtual and reality.”

The Metaverse is still in a 0~N process. The imaginary space brought to us by the digital universe and the interconnection of all things has no ultimate form. It can be said that this is an unquantifiable multi-dimensional blue ocean track. It may cover all application scenarios, from entertainment, gaming and social networking to shopping, education, and medical industry.

(2) How did Goertek get on the meta-cosmic train?

We have seen that many big players from all over the world, including Facebook, Apple, Google, Amazon, and Tencent, are vying to be the number one player in Metaverse. Then what is the origin of Goertek and Metaverse?

As we mentioned earlier, Metaverse is not a single technology, but an integration of multiple technologies. Among them, there are three core technologies at this stage: extended display technology, digital twin technology, and blockchain technology. Among them, the extended reality technology relies on VR and AR technology to provide an immersive experience.

From the layout of the giants, it is not difficult to see that AR has become a “war among soldiers”. The development of VR/AR technology in the next five years will be very rapid, and the penetration rate will increase substantially.

Metaverse thunder strikes directly, can the leader Goertek soar?

With the release of Oculus Quest2 in 2020, the VR market will return to positive growth, with annual shipments soaring to 6.7 million units, a year-on-year increase of 72%. According to IDC, between 2020-2024, global VR/AR product shipments will increase by an average annual growth rate of approximately 81.54%, and the global market will reach nearly 70 million units and 500 billion yuan in 2024.

Goertek has been involved in the VR field since 2012, and has now fully covered the VR industry chain, with one-stop R&D and manufacturing capabilities for VR headsets and related equipment. As early as 2016, it has established a good foundry partnership with major VR/AR manufacturers including Sony, Oculus, Pico, Huawei, Samsung, Kopin, etc., and is the most important foundry supplier of VR equipment in the world. It is worth mentioning that Goertek is the exclusive supplier of VR explosive product Oculus Quest 2. It has the world’s largest product shipment volume in the mid-to-high-end field, and holds the resources of first-line customers such as Sony and Huawei. It is currently in high-end VR/AR equipment. The market share in the OEM field is as high as 80%.

(3) What is the logic risk of investment based on Metaverse

We say that the enthusiasm of the Metaverse concept has pushed up the imagination and market space of AR/VR, but after all, Metaverse is still in its infancy. At this stage, VR/AR products are still mainly used in the direction of games and entertainment. Although in the long run, with the continuous expansion of its application scenarios, VR/AR has a lot of room for imagination, but objectively speaking, it is still limited by the ceiling of the game at this stage. After years of development, the game console is a relatively stable market, and the annual shipment volume is roughly Both are around 50 million units. We expect that the technology will develop rapidly and the penetration rate of the Metaverse will accelerate. However, at what speed will it be able to catch up with or even exceed expectations, no one can guarantee at this stage, so when the application scenarios are not advancing as expected , Risk arises at the historic moment.

Of course, a company’s valuation cannot be concluded based on an imaginative business alone. Let’s take a look at the fundamentals of Goertek.

02 Fundamentals of GoerTek

(1) Business development

Founded in June 2001 and listed on the Shenzhen Stock Exchange in May 2008, Goertek’s business development has gone through several stages:

1) In the early stage of endogenous growth of acoustic devices, at this stage, Goertek successfully entered the supplier roster of world-renowned mobile phone brands such as Nokia, Samsung, and LG, relying on its own acoustic technology accumulation and “large customer strategy”.

2) Entering the stage of smartphone development initiated by the fruit chain. In 2010, Goertek entered the Apple supply chain. Apple’s rapid development has driven the growth of Goertek’s component business.

3) In the development stage of electronic accessories, as smartphones encountered development bottlenecks in 2015, game accessories such as handles, VR devices, smart speakers and other electronic accessories began to support the company’s new growth.

4) In the development stage of the complete acoustic machine, in 2018, it entered the assembly of Apple’s Airpods for the first time, and became the main supplier of Oculus, bringing a new growth curve to the company.

After 20 years of business evolution, Goertek has become a technologically innovative company with a global layout. It adheres to the development strategy of “precision components + smart hardware”. Today, the company has three main businesses: precision components business and intelligent acoustic machines. Business and intelligent hardware business, providing vertically integrated product solutions including acoustics, optics, microelectronics, precision structural parts and other precision components and intelligent hardware complete machine systems, as well as in design, R&D, testing, and automated manufacturing. “One-stop” service inside.

The precision components business focuses on acoustics, optics, microelectronics, structural parts and other product directions. The main products include micro speakers/receivers, speaker modules, haptic devices (motors), wireless charging devices, antennas, micro microphones, sensors, and SiP systems Level package modules, VR optical devices and modules, AR optical devices, AR optomechanical modules, precision structural parts, etc. The above products are widely used in smartphones, tablets, smart wireless headsets, VR virtual reality, AR augmented reality, Smart wearable, smart home and other terminal products.

The intelligent acoustics business focuses on product directions related to acoustics, voice interaction, artificial intelligence and other technologies. The main products include smart wireless headsets, wired/wireless headsets, smart speakers, etc.The smart hardware business focuses on product directions related to entertainment, health, and home security. The main products include VR virtual reality, AR augmented reality products, smart wearable products, smart home electronic game consoles and accessories, smart home products, etc. In these two areas, the company mainly uses “ODM”, “JDM” and other models to cooperate with industry-leading customers for product development.

(2) Performance growth

In the first three quarters of this year, Goertek achieved revenue of 52.79 billion yuan, a year-on-year increase of 52.0%; net profit attributable to the parent company was 3.33 billion yuan, a year-on-year increase of 65.3%. Q3 achieved revenue of 22.50 billion in a single quarter, a year-on-year increase of 17.5%, and net profit attributable to the parent was 1.601 billion yuan, a year-on-year increase of 29.6%. In the third quarter, the company’s gross profit margin was 15.2%, a year-on-year decrease of 2.1pcts, and a month-on-month increase of 0.9pcts. The year-on-year decline in gross profit margin was mainly due to the substantial increase in the proportion of the whole machine business with lower gross profit. It is expected that as the company’s operating capacity improves, the gross profit margin will improve quarter by quarter in the future. The company forecasts that the net profit attributable to the parent for the year 21 is 4.24-45.3 billion yuan, a year-on-year increase of 49%-59%.

We lengthen the timeline. After Goertek’s operating income entered the stage of complete acoustics development in 2018, there has been an inflection point in revenue growth. It has shown an upward trend in the past three years, and the growth rate is better than Lipton Precision and Lens Technology. The growth rate of net profit has also risen steadily since the turning point, and there has been no regression. The overall situation is better than comparable companies.

Metaverse thunder strikes directly, can the leader Goertek soar?

Metaverse thunder strikes directly, can the leader Goertek soar?

From the perspective of growth structure, it is relatively healthy. We see that starting from the new stage in 2018, various data have improved to varying degrees. Judging by the steepness of the curve, in general, GoerTek’s cash flow growth rate> profit growth rate> income growth rate> asset growth rate. The growth quality is high, and the return of funds is greater than the expenditure of funds.

Metaverse thunder strikes directly, can the leader Goertek soar?

After 2018, its operating capabilities have also improved significantly, the capital occupancy of upstream and downstream has continued to rise, and the net operating cycle has been continuously shortened, indicating that the company’s market position and bargaining power are growing.

Metaverse thunder strikes directly, can the leader Goertek soar?

From the perspective of the proportion of the main business in the past three years, the contribution of the main business has gradually shifted from precision components to intelligent acoustic machines. The fastest growing business in the past two years is smart hardware. In other words, VR virtual reality, AR augmented reality products, smart wearable products, smart home and other products have strong development momentum.

Metaverse thunder strikes directly, can the leader Goertek soar?

Metaverse thunder strikes directly, can the leader Goertek soar?

(3) Technology research and development

Partners are undoubtedly one of Goertek’s weapons, providing Goertek with endogenous support and technical barriers.Goertek has reached long-term strategic cooperation with leading technology manufacturers such as Qualcomm and Infineon; at the same time, it has cooperated with Stanford University, Massachusetts Institute of Technology and other well-known universities at home and abroad in acoustics, optics, materials, automation, software, artificial intelligence and other professional directions. Carried out in-depth industry-university-research strategic cooperation; it also has strategic cooperation with the Chinese Academy of Sciences and other institutions to jointly build an innovation research institute in Qingdao to help research and development and talent training in the fields of virtual reality and unmanned systems.

Multiple technology integration platforms and a strong team of technical personnel have enabled Goertek to accumulate rich experience and technology in many fields such as acoustics, wireless, software, optics, and system integration.

1) Optical technology: Provide one-stop optical solutions from virtual reality/augmented reality product optical lens design, development, engineering to mass production, with optical lens engineering and mass production capabilities.

2) Frontier acoustics technology: self-developed microphones/arrays, combined with noise reduction and echo suppression algorithms developed by the Beijing/Europe team, can achieve perfect voice interaction; have outstanding 3D sound effects and sound enhancement technology; more than 10 years of acoustics Design experience, provide excellent acoustic performance and music experience.

3) Software development technology: rich experience in software development, supporting software design and development of smart wearable, smart audio, virtual reality products and virtual reality interactive products, robots and other smart hardware under operating systems such as Android/iOS/Linux/RTOS .

4) Wireless technology: Rich experience in the field of wireless communication, including wireless audio technology, wireless video technology and wireless control technology, and has formed long-term strategic cooperation with global mainstream wireless chip platform manufacturers.

5) Antenna technology: antenna mass production experience, vertical integration of acoustic + antenna overall solutions, antenna products are widely used in smart wearables, mobile phones, tablet computers and other smart terminal products.

This year’s semi-annual report shows that GoerTek continues to increase the development of new technologies, new products, and new processes, and actively introduces high-end technical talents. The research and development investment is 1,569,928,100 yuan, accounting for 5.18% of operating income, accounting for the most recent audited period. 7.96% of net assets.

Metaverse thunder strikes directly, can the leader Goertek soar?

In absolute terms, GoerTek’s R&D expenses in 2020 have increased significantly compared with the previous two years, and they are also more prominent in the industry, but they are still much worse than Lipton’s precision. In terms of relative value, Goertek’s R&D expense/sales revenue ratio has remained above 5% in the past three years, and will increase slightly in 2020, but the relative strength is not as large as Lipton Precision and AVIC Optoelectronics.

Metaverse thunder strikes directly, can the leader Goertek soar?

(4) Risks brought by key account strategy

We can see that Goertek has gone from the initial endogenous growth stage of acoustic devices to the current stage of complete acoustics development. Its customers from Nokia, Samsung-Apple, and Facebook are all internationally well-known brands. A stable source of major customers is the technical recognition of GoerTek, which is also one of Goertek’s competitiveness. But it also brings great risks to GoerTek. From the trend chart of Goertek, it can be seen that Goertek shares are highly correlated with the trend of the fruit chain. According to the 2020 annual report, the company’s top five customers accounted for 79.07% of sales, accounting for a relatively concentrated proportion, of which the largest customer accounted for 48.08%, which is estimated to be Apple.

Metaverse thunder strikes directly, can the leader Goertek soar?

Although these major customers are all leading companies in the global industry, they have significant competitive advantages and market positions, and have maintained long-term and stable cooperative relations with the company. But this makes the company may be more dependent on large customers, making Goertek face several risks.

1) Operating risks such as lower sales volume of major customers and reduced production of related products. For example, the large retracement of Goertek’s shares at the beginning of this year was partially affected by Apple.

2) Changes in key account strategy. The three major Apple iPhone foundries gathered in India, and the “de-Chinese” process of Apple’s supply chain has become an indisputable fact. The honey in the past may be the arsenic in the future. A lesson from the past is that OFILM was once the world’s largest camera module shipment. It was also a glorious moment when it entered the fruit chain in 2016. Its market value once broke 70 billion. However, when it was kicked out of the fruit chain in March this year, OFILM suffered a cliff-like blow. As a result, its profits fell by 93% in the first half of 2021, and its market value lost more than 30 billion yuan. After the iPhone 13 sold out this year, 34 Chinese companies were eliminated.

3) The issue of Sino-US relations. Both Apple and Facebook are American companies, and it is inevitable that they will be controlled by the US government, and the Sino-US dispute seems to only intensify after a century of changes. The scenes where many Chinese companies were intervened, restricted, and cracked down by the US government are vivid. In the future Sino-US dispute, it is still unclear whether Goertek’s shares will be affected.

According to the consensus prediction of the brokerage firms (wind), the PEG of GoerTek’s 2021E, 2022E, and 2023E are 0.78, 0.89, and 0.89, respectively, which are all less than 1. Goertek may be undervalued by the market.

03 TWS headphone space

The previous article shows that smart hardware and smart acoustic machines are accelerating. The first part of the article explains the imagination space of smart hardware AR/VR, and where is the space for TWS headsets in the smart acoustic machines.

From the perspective of smartphone shipments, it is not optimistic. The development of the smartphone industry has entered a mature stage. After experiencing explosive growth, global mobile phone sales reached its peak in 2016 and began to decline. In 2017, it fell 5.83% year-on-year, and then continued to decline. We see the same trend in China.

Metaverse thunder strikes directly, can the leader Goertek soar?

At the same time, 5G smartphones ushered in a “replacement wave”, which has injected new vitality into the saturated smartphone stock market. According to the white paper on the development trend of 5G flagship smartphone chips released by Counterpoint Research, the utilization rate of global 5G smartphones has been rising rapidly in the past two years. Looking forward to 2022, Counterpoint predicts that global 5G smartphone shipments will exceed 800 million units.Intuitively, the domestic 5G mobile phone shipments have also shown a rapid upward trend in the past two years.

Metaverse thunder strikes directly, can the leader Goertek soar?

The smartphone market is saturated with the 5G replacement wave. From the mobile side, this space is mixed; but we are optimistic from the perspective of the penetration rate of TWS. Its penetration rate is rapidly increasing, driven by explosive products such as Airpods, and TWS headsets are shipped globally. The volume has increased from 20 million units in 2017 to 250 million units in 2020, an increase of more than ten times in 4 years. Judging from the value of TWS headset/mobile phone shipments, the increase from 1% in 2017 to 19% in 2020 indicates that mobile phone users are increasingly accepting TWS headsets.

Although the penetration rate of TWS among mobile phone users is rapidly increasing, its overall penetration rate is still less than 10% by 2020, and there is room for accelerated penetration in the future. According to Canalys’ forecast, global TWS shipments are expected to exceed 500 million units in 2024.

Therefore, there is still a lot of room for the intelligent acoustics whole machine business driven by GoerTek’s TWS headset, but because its space is tangible, it may not be as imaginative as to benefit from the invisible space of the Metaverse, but it is more imaginative. Complementing each other is the unknown. On the other hand, the space brought by TWS headphones may be more practical.

On the whole, GoerTek shares have good fundamentals and growth potential, and the imagination space brought by the intelligent hardware and intelligent acoustic machine business is also very broad. Taking advantage of the east wind of Metaverse, the valuation of GoerTek shares seems to be steadily high. It is possible, but we cannot ignore the risks brought by various uncertainties. Whether Goertek is hot or cold, it still needs the further landing of Metaverse, the further expansion of the scene application, and the search for certainty in the uncertainty.

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