Debon Technology is a specialized, new, and small giant enterprise supported by the state, and is a leading segment in the high-end packaging field in China. In the medium to long term, integrated circuits, smart terminals, and new energy application materials, where the company's main business is located, are all in a period of steady growth. We are optimistic that the company will build on technology, take advantage of capital investment and expansion, achieve localized substitution in the customer supply chain, and continue to increase its share of supply. We expect the company to achieve net profit of 213/319/431 million yuan from 2023-2025. The corresponding EPS forecast is 1.50/2.25/3.03 yuan respectively, giving the company a target price of 80 yuan, and giving the company a “buy” rating for the first time.
Specialized and innovative “little giants”, and their profitability continues to improve. The company is a leading segment in the high-end packaging field in China. In 2021, it was selected as one of the third batch of specialized and innovative “little giants” by the Ministry of Industry and Information Technology. The company's products use electronic packaging materials as the main line, and run through different levels of electronic packaging from level 0 to level 3. In 2019-2022, the company's revenue and net income CAGR were 41.63%/50.61%, respectively, and are in a period of rapid growth. We expect that with the continued implementation of fund-raising projects and the completion and commissioning of 20,000 tons of battery packaging materials, the company's share in the customer supply chain system will continue to increase, and medium- to long-term performance is expected to maintain a strong growth momentum.
R&D innovation lays the foundation and aims to replace domestic production. By the end of 2022, the company had obtained a total of 285 invention patents. In 2018-2022, the R&D cost rate remained above 5%. By business, the boom in the integrated circuit and smart terminal packaging materials industries involved in the company's main business is accompanied by an increase in computing power demand and a gradual recovery in global medium- to long-term demand for consumer electronics. McKinsey expects global demand for semiconductor terminals to exceed 1 trillion US dollars by 2030, corresponding to an average annual growth rate of 6%-8%, which will drive simultaneous growth in the packaging materials market. Currently, the main players in the industry are still German, Japanese, and Korean companies. According to company statistics, domestic enterprises account for less than 10% of the market. Debon Technology has achieved breakthroughs in localization in various materials, and is expected to fully benefit from the industry's localization substitution trend. Under “mileage” and “safety” anxiety, we expect the domestic NEV adhesive market to reach 8.8 billion yuan by 2025, 2.5 times that of 2022. The company's polyurethane thermal conductive adhesives are expected to enter a stage of rapid growth.
Fund-raising projects are progressing steadily, protecting the company's high performance growth. According to the company's prospectus, it is proposed to use 640 million yuan of raised capital, combined with its own capital of 700 million yuan to build various projects, including 8,800 tons of battery packaging materials and a large number of semiconductor packaging materials, and at the same time build a research institute to enhance research and development capabilities. At present, 8,800 tons of battery packaging materials have been completed and put into production. Driven by strong downstream demand, the company announced that it plans to build an additional 20,000 tons of battery packaging materials, and plans to complete and put into operation by the end of 2023. The company's fund-raising projects and the implementation of additional planned production capacity construction will continue to improve the problem of insufficient production capacity, help deepen cooperation with leading enterprises, and fully enhance product supply capacity. It is expected to have a strong driving effect on performance growth.
Risk factors: product iteration and technology development risks; the share of integrated circuit packaging materials in revenue continues to decline; the share of power battery packaging materials continues to rise, leading to a continued decline in the company's gross margin; risk of loss of key technical personnel; risk of loss of key technical personnel; risk that the construction progress of fund-raising projects falls short of expectations.
Profit forecasting, valuation and rating: Debon Technology is a state-supported, specialized, and new small giant enterprise, and a leading segment in the high-end packaging sector in China. In the medium to long term, the integrated circuit, smart terminal and new energy application materials industries, where the company's main business is located, are all in a period of steady growth. We are optimistic that the company will build on technology, take advantage of the trend of capital investment and expansion of production, achieve localized substitution in the customer supply chain, and continue to increase its share of supply. We expect the company to achieve net profit of 213/319/431 million yuan in 2023-2025. The corresponding EPS forecast is 1.50/2.25/3.03 yuan respectively, giving the company a target price of 80 yuan (combining the two valuation methods of PE and DCF, corresponding to 53xPE in 2023), covering the “buy” rating for the first time.