J.Pond Precision is an outstanding domestic manufacturer of precision functional components, boasting significant advantages in product innovation and customer channels. Leveraging the exceptional industry experience accumulated from major clients, the Company is poised to secure more international orders and gain a higher market share, further enhancing its brand impact. J.Pond Precision is also rapidly entering the carbon nanotube industry, with its products already integrated into certain power, energy storage, and consumer battery manufacturing supply chains, which may refuel the Company's growth. We estimate its 2023E-25E attributable net profit (ANP) at Rmb56mn/113mn/184mn, equivalent to EPS forecasts of Rmb0.77/1.56/2.55. Based on the PE and PEG valuation methods, we assign a target price of Rmb43 on 55x 2023E PE and initiate coverage with a "BUY" rating.
Company profile: Domestic leader of the precision functional parts. J.Pond Precision is a highly customized manufacturer of precision functional and structural parts. Its products find applications in various end-user segments, including tablets, laptops, all-in-one computers, smart home devices, 3D printing, drones, and more. The Company's revenue mainly comes from its precision functional and structural parts business, and it ventured into the carbon nanotube field in 2020, enriching its business mix. In 1H23, J.Pond Precision achieved revenue of Rmb327mn, down 30.05% YoY; and ANP of Rmb-10mn, turning into a YoY loss.
Precision functional & structural parts: Consumer electronics shows visible improvement, and J.Pond enhances its leadership via deeper partnerships.
Precision functional and structural components belong to the midstream link of the consumer electronics industry value chain. The demand for downstream end-user consumer electronics, such as tablets, laptops and all- in-one computers, is likely to rebound and enter a new growth cycle. Against the backdrop of the gradual migration of the consumer electronics supply chain to Southeast Asia and South Asia, the Company's establishment of an overseas production base in Vietnam helps optimize the supply chain and improve supply efficiency. The rapid development of the downstream industries, with demand for features like slimness and flexibility, drives continuous innovation in functional and structural parts. Leveraging its strong R&D capabilities and economies of scale, J.Pond continuously provides high- quality products to its customers, facilitating customer expansion. As of now, it has become consumer electronic suppliers of some international brands like Apple, Google, Amazon etc, and such partnerships contribute to the Company's stability, sustainability, and brand recognition.
Carbon nanotubes: Venturing into the lithium battery material field to create a second growth curve.
Carbon nanotubes, compared to traditional conductive agents like carbon black, have advantages in terms of conductivity and usage. The demand for fast-charging lithium-ion batteries (LIBs) and the emergence of new anode materials like silicon-carbon (SiC) will to some extent drive the demand for carbon nanotube conductive agents. We anticipate that by 2025, the demand for carbon nanotubes will reach 31kt, with a CAGR of 79.8% from 2021 to 2025, corresponding to a demand for 770kt of carbon nanotube slurries in 2025. The Company will continue to expand its carbon nanotube production capacity and accelerate its carbon nanotube business with its excellent carbon nanotube R&D team. As its carbon nanotube products have been recognized by some battery manufacturers, especially those in the new energy vehicle (NEV) battery segments, such products gradually enter into the supply chains of these battery manufacturers. The carbon nanotube business revenue is likely to experience significant growth, enhancing the Company's profitability, stability and sustainability.
Potential risks:
A growth slowdown or decline in the global consumer electronics market; delays in the construction of new production capacity projects; price hikes of raw materials; fluctuations in exchange rate; risks related to safety in production; and intensified competition in the industry.
Investment strategy:
J.Pond Precision is an outstanding domestic manufacturer of precision functional components, boasting significant advantages in product innovation and customer channels. Leveraging the exceptional industry experience accumulated from major clients, the Company is poised to secure more international orders and gain a higher market share, further enhancing its brand impact. It is also rapidly entering the carbon nanotube industry, with its products already integrated into certain power, energy storage, and consumer battery manufacturing supply chains, which may refuel the Company's growth. We estimate its 2023E-25E ANP at Rmb56mn/113mn/184mn, equivalent to EPS forecasts of Rmb0.77/1.56/2.55, with the stock currently trading at 45x/22x/14x 2023E/24E/25E PE. Based on the PE and PEG valuation methods, by taking into account the average valuation level of the comparable companies and the expectation of the Company's high growth, we assign 55x 2023E PE to derive a target price of Rmb43 and initiate coverage with a "BUY" rating.