Mainland aluminum electrolytic capacitor faucet, domestic alternative acceleration. Ai Hua is the fourth largest manufacturer of aluminum electrolytic capacitors in the world, from the early production of lead-type electronic consumer aluminum electrolytic capacitors to energy-saving lighting, covering a full range of consumer and industrial aluminum electrolytic capacitors. It has a complete industrial chain of "corroded foil + formed foil + electrolyte + aluminum electrolytic capacitor". In recent years, the company continues to expand its production capacity and is currently the largest manufacturer of aluminum electrolytic capacitors in China, among which it has the largest global market share in subdivisions such as energy-saving lighting and fast charging of mobile phones, and also occupies a large market share in other consumer electronics and industrial fields. this year, the overseas supply chain was affected by the epidemic, the supply of middle and high-end products was greatly affected, superimposed trade frictions intensified, and downstream manufacturers have sought domestic supply. The company has gradually launched mid-and high-end products with long-term technology accumulation, and has been introduced into customers one after another.

Production capacity is steadily expanding, and the layout of new products is gradually completed. The demand for aluminum electrolytic capacitors is relatively stable, there are high barriers at the supply end, the overall industry concentration is gradually increasing, and the company's business strategy is sound and enterprising. Since listing, it has been expanded twice through IPO and convertible bonds. By the end of 2019, the company's aluminum electrolytic capacitor production capacity has reached 124 billion pieces / year, and the company's convertible bond investment project is still under construction. According to downstream demand, it is expected to be put into production in batches in 21 / 22. The company's new production capacity is mainly around the high-value horn capacitors and laminated chip solid-state capacitors. This year, the company has mainly completed the sample delivery of new products, and the downstream production capacity is actively booked. It is expected that the output value will be contributed quickly after the production capacity is put into production next year.

Downstream applications are growing steadily, and emerging fields are breaking out rapidly. Aluminum electrolytic capacitors are mainly used in consumer electronics power supply, lighting, industrial control and other fields, with an average annual compound growth rate of 6-8%. Among them, the lighting category benefits from the downward cost of LED, the industry permeability continues to rise, and the downstream discharge is obvious, which pulls up the corresponding capacitance demand; the emerging demand is represented by fast charging, and the charging power of mobile phone adapter increases rapidly, which leads to the rapid increase of stand-alone ASP, and the permeability of fast charging is accelerating under the promotion of Android flagship computer, driving the price of fast charging capacity to rise. The industrial control field benefits from the upstream boom, the mid-stream manufacturing takes the initiative to replenish inventory, domestic manufacturers go against the trend to increase their share, and the demand for capacitors is growing strongly.

Supply-side reform promotes the concentration of the industry, and the integrated layout consolidates competitive advantages. The production link of aluminum electrolytic capacitor has great pollution, and the important raw material aluminum foil belongs to the industry with high energy consumption. Since the supply-side reform, the production capacity has shrunk obviously, and the industry concentration has increased obviously. Ai Hua adjusted its strategy in time, and began to lay out upstream aluminum foil in 18 years. At present, it has built production capacity of chemical foil and corroded foil in Xinjiang and Nantong respectively. The self-sufficiency rate of medium and high voltage aluminum foil has reached 70%, effectively ensuring the stability of its own raw material prices, and making better profits through exporting aluminum foil.

Profit forecast, valuation and investment rating. The company's current production capacity is in short supply, as new product research and development affects short-term profit margins, next year, with the introduction of new production capacity and aluminum foil self-sufficiency rate, the company's revenue and profit is expected to usher in faster growth. We expect the company's EPS for 20-22 years to be 0.97 EPS 1.2 yuan 1.34 yuan respectively. Taking into account the company's leading position in the aluminum electrolytic capacitor industry and the downstream industrial control / fast filling scene bearing, refer to the peer Sanhuan Group / Fenghua Hi-Tech / Jianghai shares corresponding to an average of 30X in 21 years, give the company 30 times PE in 21 years, corresponding to the target price of 36 yuan, the first coverage, given the "recommended" rating.

Risk tips: downstream applications are not as expected, capacity expansion is not as expected, industry competition is intensified, raw material prices fluctuate sharply, and new product development is not as expected.