Main points of investment

Deep ploughing the global EMS market, the performance starts the high-speed growth: the company deeply ploughs the EMS market, EMS products cover five major application fields: industrial control, communications, medical electronics, consumer electronics and automotive electronics, can provide high-quality electronic manufacturing services for global customers, and achieve rapid growth in global market segments, especially the significant improvement of medical and automotive electronics customer business. Led to the rapid growth of the company's performance and the continuous improvement of profitability. From 2020 to 2022, the operating income of the company was 1.95 billion yuan, and the net profit was 1.66 billion yuan. In the first half of 2023, the company achieved operating income of 854 million yuan and yoy-13.7%, net profit of 66.419 million yuan. The decline in yoy-28.8%, revenue was mainly affected by the reduction in downstream terminal demand, due to fluctuations in raw material prices and rising costs, which affected the overall performance of the company. With the decline in the price of raw materials upstream and the gradual recovery of the prosperity downstream of the electronics industry, the company's revenue and profits are expected to resume growth.

EMS has a broad market space, and diversified applications enhance the market demand of EMS: the emergence of the electronic manufacturing service industry is the result of the specialization of the global electronic industry chain, which is in the middle of the industry chain. According to the statistics of New Venture Research, the global market size of EMS industry will reach 694.4 billion US dollars in 2022. It is expected that the global revenue of electronic manufacturing services will reach 906.7 billion US dollars by 2027. With the diversification and depth enhancement of new technology application scenarios such as artificial intelligence and big data, especially in the fields of medical treatment, industrial control, new energy power, new energy vehicle, high-end consumer electronics and so on, EMS industry presents the diversification and personalization of customer requirements, and the iterative and updating frequency of new technology and new products is accelerated, which puts forward higher requirements for EMS manufacturers' flexible manufacturing capability, fine management, service response speed and so on.

The company locates the strategy of small-batch and multi-variety products and the global layout of capacity expansion: under the differentiated market competition strategy of small-batch and multi-variety, the company can provide electronic manufacturing services of more than 5000 products to high-quality customers around the world, which is expected to fully benefit from the rapid development of the EMS market. The company attaches importance to customer demand and experience, and continues to expand the existing production capacity. The production lines in Mexico and Vietnam have entered the stage of mass production, and the first phase of the second phase of the domestic project has also been completed. In the fourth quarter of 2023, the company will invest in capacity construction in its subsidiaries in Mexico and Romania, further increase global production capacity, and meet the local delivery needs of local customers in Europe. The construction of the first and second phases of the domestic plant is progressing smoothly, and the total production capacity of the two phases is expected to reach 10 billion.

Profit forecast and investment rating: the company has outstanding technological competitiveness in the field of EMS and steady market expansion, which is expected to fully benefit from the increasing demand for electronic products in the downstream industrial control, communications, medical and other markets. We estimate that the revenue of the company in 2023, 2024, and 2024, respectively, will be 2.594 billion yuan in 2025, an increase of 6.11%, 22.63%, 33.69%, and a year-on-year increase of-19.19%, 48.58%, 35.74%, respectively. The company's PE in 2025 is 26.26 / 17.68 / 13.02 times, we are optimistic about the company's multi-variety layout in the EMS field, covering for the first time and giving a "buy" rating.

Risk tips: market demand is not as expected; new product launch is not as expected; customer development is not as expected.