Ping An's point of view:
A leading domestic soft magnetic materials company, has deployed three new material technology platforms: powder metallurgy, SMC and MIM. The company started with powder metallurgy structural components. Currently, it is the only domestic enterprise with powder metallurgy, SMC (metal soft magnetic powder core) and MIM (metal injection molding products) services. Under the high prosperity of downstream photovoltaics, new energy vehicles and other industries, the company is expected to give full play to its scale and business collaboration advantages and enter the fast track of development.
Soft magnetic powder cores are driving performance growth, and production capacity is planned to exceed 100,000 tons. Metal soft magnetic materials have excellent properties and are widely used in photovoltaics, new energy vehicles, and inverter air conditioners. Driven by the rapid growth of the terminal industry, there is room for growth in global demand for soft magnetic metal powder cores. The company is a leading domestic soft magnetic powder core company, with a global market share of 16% in 2022. In the first half of 2023, metal soft magnetic powder cores achieved revenue of 488 million yuan, an increase of 17.8% over the previous year. On the basis of current production capacity, Shanxi Magnetoelectric's project to build a soft magnetic materials industrial base with an annual output of 60,000 tons is being actively promoted. The future soft magnetic powder core production capacity is expected to exceed 10 million tons, further consolidating the position of the leading domestic soft magnetic enterprise. In 2022, the company acquired Deqing Xinchen, increasing the proportion of powder supply, complementing the upstream layout of the industrial chain, and opening up room for increased gross margin.
The recovery of consumer electronics is expected to accelerate, and the profitability of the MIM sector is expected to continue to increase. Since the company acquired Dongguan Huajing and Shanghai Fuchi in 2020, the MIM sector layout has been improved at an accelerated pace. The consumer electronics boom is expected to pick up at an accelerated pace in the second half of the year. As the company's core supplier of folding screen phone hinges for Huawei, the MIM sector business is expected to benefit fully. As the terminal boom picks up and the company's product strength increases, the profitability of the MIM business is expected to continue to increase.
Powder metallurgy technology is mature, and the leading position is stable. The global powder metallurgy market was US$26.7 billion in 2021 and is expected to grow to US$34 billion in 2027, with a CAGR of 4.1%. The company's powder metallurgy business has achieved multi-base operation. It is supplying customers to the world's first-tier auto parts companies. The export products are mainly high-end powder metallurgy auto parts. The “brand+cost” advantage helps the company expand the international market and increase product gross profit margin.
Profit forecasts and investment suggestions:
In the long run, the boom in the new energy sector continues, and the growth rate of demand for soft magnetic powder cores is expected to remain at a high level. The inflection point of consumer electronics is gradually compounded by the increase in the penetration rate of folding screen phones, opening up room for growth in the company's MIM business. With demand from various terminals boosted, the flexibility of the company's business performance in all sectors is expected to be fully unleashed. At the company level, with the upgrading of product technology and the deepening of the industrial chain layout, the collaborative advantages of the three main businesses will be further highlighted. Technology, production and customer factors go hand in hand, and the company's market competitiveness and product gross margin are expected to further improve. As soft magnetic production capacity is being expanded and released one after another, the company's market share has increased at an accelerated pace. The soft magnetic powder core business is expected to drive the company's performance growth as a core driving sector. The company's 2023-2025 operating income is estimated to be 42.97, 53.51, and 6.297 billion yuan, and net profit of 1.96, 13, and 427 million yuan. The corresponding PE was 45.5, 28.5, and 20.9 times, covering the “recommended” rating for the first time.
Risk warning:
1. The progress of the company's project fell short of expectations. If the company's soft magnet production capacity under construction falls far short of expectations, it may cause the soft magnet business to grow less than expected. 2. Downstream demand falls short of expectations.
If demand growth in terminal sectors such as new energy vehicles, inverter air conditioners, and consumer electronics slows down, the company's powder metallurgy and metal injection molding products sales may be greatly affected.
3. Interbank production capacity accelerates risk release. If companies in the soft magnetics industry experience rapid expansion in production capacity, then to a certain extent, competition may increase, there is a risk of overcapacity in soft magnetic products, or it may have a great impact on the company's competitiveness.