Key points of investment
Consumer electronics: The industry has gradually bottomed out, and AI and MR may spawn new demand. The development of AI technology will gradually increase demand for computing power on mobile phones, which in turn is expected to drive demand for mobile phone switching. The growing maturity of MR technology will also bring new products and new demands. The last round of mobile phone purchases peaked at H2 in 2019 and H1 in 2020. It has been 3 years since then, and demand for switching devices is increasing.
From February to April this year, the cumulative year-on-year growth rates of smartphone production in China were -14.1%, -13.8%, and -11.2%, respectively. The decline was clearly narrowing. It may be at the bottom of the industry now, and it is expected to gradually pick up in the future.
The company's share of business in the core products of major overseas customers continues to increase, and revenue is expected to grow steadily.
New energy vehicles: The industry has been improving for a long time. R&D is the core competitiveness IDC predicts that the size of China's NEV market will reach the level of 15.98 million vehicles in 2026, with a compound annual growth rate of 35.1%. At that time, the penetration rate of new domestic NEVs will exceed 50%. The company is actively laying out a new energy vehicle product line. On the basis of the smart cockpit product series, it has introduced a number of incremental track products such as intelligent driving systems, thermal management systems, smart chassis and suspensions. The business is expected to continue to grow rapidly in the future.
New smart products: Downstream demand has blossomed more and more, demand for household storage products is strong. Empowered by 5G and artificial intelligence technology, application scenarios for new smart products are becoming more and more detailed, market scale continues to grow, and there is broad scope for development in smart homes, gaming hardware, drones and other fields. Benefiting from major trends in the transformation of new energy sources, household energy storage is a global high growth racetrack. According to the European Photovoltaic Industry Association's “medium scenario” forecast, by the end of 2026, 3.9 million households in Europe will deploy residential battery energy storage systems, and the cumulative energy storage capacity deployed will increase by more than 300%. Relying on R&D advantages to advance layout, the company continues to share downstream growth dividends.
Investment advice
We forecast the company's revenue from 2023 to 2025 to 1278.5 (+19.3%) and 1502 (+17.5%), respectively
With 1725.3 (+14.9%) billion yuan, the NEV business was the sector that grew the fastest and contributed the most absolute amount to growth. The company's net profit is expected to be 27.03 billion (+45.5%), 38.49 (+42.4%), and 49.63 (+28.9%) yuan, respectively.
We believe that 2023 will be an inflection point for the company's performance to return to growth. The company's reasonable stock price is HK$30.3 per share, corresponding to 23 times PE in 2023. There is room for the stock price to rise by 22.5%, giving it a “buy” rating.