Investment logic
Focusing on consumer lithium batteries, laminated button battery technology opens up new space for growth. 1) The company's main products focus on small consumer lithium-ion batteries below 1000 mAh. The products are divided into square batteries, button batteries, cylindrical batteries, needle batteries, etc. Downstream, all kinds of small consumer electronics products are the main application areas, including Bluetooth headsets, smart wearables, smart speakers, portable medical devices, car recorders, etc. 2) In 2016, the company successfully developed a laminated hard-shell button battery, breaking the technical monopoly and patent barriers of foreign companies over button-type batteries. 3) The company's 1H22 revenue was 403 million yuan, +12.58% year on year; the net profit of the mother was 42 million yuan, or -31.37% year on year. The decline in profitability was mainly due to the increase in the average price of lithium cobalate and the company's continued expansion of production affecting gross profit margins. Currently, lithium cobalate prices have declined.
The downstream TWS headphone, smart wearable, and smart home markets are growing quite a bit. In 2021, the company's revenue share in the Bluetooth headsets, smart wearables, and Bluetooth speaker markets was 92.3%, 5.2%, and 0.6%.
1) According to Canalys data, global brand TWS shipped 120, 23, and 290 million units respectively in 2019-2021. According to our estimates, the market size of the brand TWS headphone market in 2024 is estimated to be close to 12.5 billion yuan. Due to functional upgrades and increased added value, domestic brands are expected to increase their share through the placement ratio. 2) In terms of other markets, according to our estimates, the global markets for smart wearables (excluding TWS headsets) and smart speaker batteries are expected to reach 1.65 billion yuan and 2.76 billion yuan respectively by 2025, and space for emerging markets such as e-cigarettes and drones will also increase steadily.
Technological barriers reinforce the leading position, and deployment in various fields is imminent. The company's laminated button batteries avoided Valta's patent barrier. The global TWS headphone battery market share in 2021 was 11.18%, and there is still room for improvement. Furthermore, the company continues to deploy emerging markets represented by AR/VR, gamepads, e-cigarettes, and smartwatches. Segments have higher growth potential and are yet to be released.
The company's IPO in August 2022 actually raised 1,081 million yuan to invest in consumer lithium-ion battery production expansion projects, Zijian R&D center construction projects, and supplementary working capital.
Investment advice
It is predicted that in 2022-2024, the company's net profit to the mother will be 1.04, 1.58, 238 million yuan, +3.03%, +52.61%, and +50.32% compared with the same period last year. Using PE valuation, it was given 38 times that of PE in 2023, with a target market value of 6,017 billion yuan. The corresponding target price was 84.99 yuan/share. The first coverage gave a purchase rating.
Risk warning
Risk of core technology leakage, risk of rising raw material prices, risk of technology iteration falling short of demand, risk of concentration in downstream application fields, risk of patent infringement, risk of restricted stock being lifted, etc.