The company is the leader in powder metallurgy in China, and it is expected that the substantial increase in Huawei folding screen mobile phone shipments in 2024 will lead to a high increase in the company's MIM business. We maintain the company's 2023 homing net profit forecast of 205 million yuan, and raised its 24-year homing net profit forecast of 37950,000,000 yuan (the original forecast was 259Universe 340 million yuan). Considering that the company's consumer electronics products are expected to fully benefit from Huawei's folding screen phone volume, SMC has a broad space for long-term growth, and the future is expected to benefit from photovoltaic, energy storage and other new energy industry high demeanor, combined with the industry average valuation level, we give the company 2024 25 times PE valuation, corresponding to the company's target price of 16 yuan, to maintain the "buy" rating.
Company profile: the company is the only company that integrates three mainstream or trend growth technologies in the powder metallurgy industry, namely, packs (Powder Metallurgy pressing forming), SMC (soft Magnetic Composites) and MIM (Metal injection Molding). Among them, the company is in the domestic leading position in the packs industry, SMC and MIM are in the first echelon in the country. Based on the three new material technology platforms, the company is committed to providing the best material solutions and value-added services for new energy and high-end manufacturing. 2023H1, the company achieved revenue of 1.763 billion yuan, down 0.92% from the same period last year, and realized a net profit of 36 million yuan, down 25.81% from the same period last year.
The MIM industry is in the ascendant, and folding screen mobile phones are expected to drive the rapid growth of MIM demand. IDC expects global shipments of 21.4 million folding screen phones in 2023 and 41.5 million in 2026, corresponding to 24.7 per cent CAGR in 2023-2026. The MIM part is one of the most important parts in the folding screen rotating shaft.
We expect Huawei to ship 11.9 million folding screen phones from 2023 to 2025, and the company is expected to fully benefit from being a major supplier of hinges for Huawei's new folding screen.
The company has joined the first echelon of MIM through epitaxial mergers and acquisitions and is proposed to be introduced into Shenzhen SASAC. In 2019 and 2020, the company acquired Dongguan Huajing and Shanghai Fuchi respectively and cut into the MIM plate and entered the first echelon of the MIM industry. From 2020 to 2022, the company's MIM sector income exceeded 1 billion yuan for three consecutive years. The company plans to build three bases: Shanghai MIM R & D center, Lianyungang MIM production base and South China MIM production base. In September 2023, the company announced that Shanghai Fuchi, a subsidiary of Shanghai Fuchi, intends to introduce investors into the fire. In fact, the controller is Shenzhen SASAC. We judge that this transaction is conducive to the realization of complementary resources and jointly promote the development of Shanghai Fuchi's main business.
The demand for new energy vehicles and photovoltaic-driven metal soft magnetic materials has increased rapidly, and the company's production capacity is planned to exceed 100000 tons. Benefiting from the continuous improvement of the photovoltaic and new energy vehicle industry, we estimate that the global demand for metal soft magnetic cores will be 355000 tons in 2025, corresponding to 23.1% CAGR in 2022-2025. Dongmukoda, a subsidiary of the company, has a soft magnetic production capacity of 40,000 tons and Shanxi Dongmu has a soft magnetic production capacity of 6000 tons. in addition, according to the company announcement, the company plans to build an annual soft magnetic material industrial base in Shanxi with a long-term capacity of 106000 tons, ranking first in the industry. In the first half of 2023, the company's SMC sector achieved revenue of 488 million yuan, an increase of 67.23% over the same period last year.
Packs has a solid position as a leader in business, exploring new directions for technology application. In the first half of 2023, the company's Packers segment achieved revenue of 876 million yuan, down 1.77% from the same period last year, mainly due to a 6.11% year-on-year decline in main revenue in the field of home appliances. According to the data of the Powder Metallurgy Association of the China Machinery Association, the company's market share in the powder metallurgy industry reached 26.7% in 2022, ranking first all the year round. According to the company announcement, Ningbo Dongmu Guangtai, an associate of the company, acquired a 3% stake in Shenzhen Xiaoxiang Electric in May 2023, which is conducive to strengthening the company's technical research on motor and non-automotive powder metallurgy applications.
Risk factors: the risk that downstream demand is lower than expected; the risk that the company's production expansion plan is less than expected; the risk of rising raw material prices; the risk of large exchange rate fluctuations; the risk of intensified competition in the industry.
Profit forecast, valuation and rating: the company is the leader in powder metallurgy in China. It is expected that the substantial increase in Huawei folding screen mobile phone shipments in 2024 is expected to lead to a high increase in the company's MIM business. We maintain the company's 2023 homing net profit forecast and raise its 24-year 25-year net profit forecast to 379,50,000,000 yuan (the original forecast is 259,340 million yuan) The corresponding EPS predictions from 2023 to 2025 are 0.33 Universe 0.62 Plus 0.81 yuan respectively.
Platinum Science and Technology, Dragon Magnetic Technology, Yunlu and Yuean New Materials are selected as comparable companies. At present, the average PE valuation of the above comparable companies is 20 times based on the consensus expectation of Wind. Considering that the company's consumer electronics products fully benefit from Huawei's folding screen phone volume, SMC has broad long-term growth space and is expected to benefit from photovoltaic, energy storage and other new energy industries in the future. We judge that the company should enjoy a valuation premium above the industry average, giving the company a valuation of 25 times PE in 2024, corresponding to the company's target price of 16 yuan, maintaining a "buy" rating.