Company Profile Wuhan Guide Infrared Co., Ltd is a China-based company, principally engaged in the research and development, manufacture and distribution of infrared thermal imagers and integrated photovoltaic systems. The Company is also engaged in the provision of traditional ammunition and information ammunition and technology services, and house leasing business. The Company distributes its products within domestic market and to overseas markets. (Source: Reuters)

Event

According to the announcement on December 15 of 2021, Wuhan Guide Infrared (hereinafter referred to as “the company”/ Guide Infrared) inked an order contract on an infrared thermal imager, with the contract amount at CNY 1.451 billion, the largest announced since it floated its securities.

Comments

The inked contract takes up 43.53% of the company’s audited revenue in 2020 and will have positive impacts on this year’s and the coming years’ performance.

The contract marks a centralized procurement of an existing project in which the company engaged, continuing the rapid growth momentum of orders for multiple products.

Guide Infrared is the one and only supplier for a core component of the existing project. The company has received large amount of advance payment, and it will actively carry out production to ensure the delivery as scheduled.

The Wuhan-based company has seen its national defense business develop by leaps and bounds in recent years, and made multiple announcements on wining bids or contracts concerning critical military products.

In 2020, the company’s major contract amount totaled CNY 1.793 billion, accounting for 109.49% of the total revenue in 2019; in 2021 (as of December 15), the amount reached CNY 2.683 billion, taking up 80.49% of the total revenue in 2020.

According to the announcement on Dec. 3, the company has received a bid-winning notice. Guide Infrared secured the first spot in the ranking after assessing five aspects including development schemes, technical parameters and scientific research and production competences.

Earnings forecast and investment recommendation

We revised its earnings forecasts and estimated its net profit attributable to shareholders to CNY 1.336 billion in 2021,CNY 1.62 billion in 2022, and CNY 2.047 billion in 2023, implying a P/E ratio to 42.9x, 35.4x, and 28.0x, based on the closing price on Dec. 17. Maintain “Outperform”.

Potential risks

slower-than-expected progress of new products; unexpected changes of weapon system design and demand