Thermal solution provider, high thermal conductivity graphite products and thermal interface materials are in a leading position in the industry

On the basis of providing thermal management functional solutions based on graphite materials, thermal interface materials, and two-phase flow products, the company provides “comprehensive reliability solutions” such as thermal management, electromagnetic shielding, and adhesive sealing for next-generation electronic equipment to meet the different needs of electronic equipment needed in the consumer electronics, digital infrastructure, intelligent transportation, and clean energy industries.

The company's business scope covers core functional materials and components. The thermal solution products it can provide include high thermal conductivity graphite products, thermal interface materials TIM, heat pipes, heat equalization plates, thermal modules, etc., with a wide range of downstream application scenarios. The company has a leading position in the industry and is a leading global company for artificially synthesizing high thermal conductivity graphite. In the field of thermal interface materials, it has become a mainstream supplier of thermal interface materials for the global communications industry and consumer electronics. Many products are pioneers in the industry.

Operating income has increased steadily, and gross margin has fluctuated

In 2020-2022, the company achieved operating income of 11.49/12.48/1,592 billion yuan, an increase of 48.06%/8.62%/27.62% over the previous year, with a compound growth rate of 17.7%. The company's main business can be divided into three segments: thermal conductive materials, EMI shielding materials, and other businesses. In 2022, it achieved revenue of 14.82/0.67 /43 billion yuan, accounting for 93.06%/4.24%/2.70% of revenue, respectively.

In 2020-2022, the company's gross margin was 33.5%/26.2%/28.2%, respectively, showing a fluctuating trend. The reason for the decline in the company's gross margin in 2021 was the increase in the share of major customers and changes in the customer structure, and the company cooperated with customers to make price reduction adjustments, which led to a decline in gross margin; in 2022, the reason for the increase in the company's gross margin was due to the company's optimization of production processes, expansion of production capacity, and increase yield. In 2020-2022, the company achieved net profit of 1.88/ 1.32/193 million yuan, a year-on-year change of +53.09%/-29.99%/+46.90%, with a compound growth rate of 1.4%.

The product layout is extensive, and it is used in various fields such as consumer electronics and digital infrastructure

The company's products have a wide range of applications, including consumer electronics, digital infrastructure, intelligent transportation, clean energy and other fields. In the field of consumer electronics, the company provides various products such as high thermal conductivity graphite products, thermal interface materials, heat pipes, etc., which basically cover mainstream mobile phone brand customers at home and abroad. In the future, the company will strategically lay out emerging consumer electronics tracks such as AR/VR devices, folding screen phones, and smart projectors. In the field of digital infrastructure, the company's business covers server/data centers, communications, security equipment, etc., and has now been supplied in batches to many domestic and foreign companies. In the field of intelligent transportation, the company provides comprehensive reliability solutions for electronic equipment in the fields of autonomous driving, intelligent cockpits, and large and small three-electric systems; the company has already obtained the development target project or supplier code of Xiaopeng Motor, one of the world's top 3 German component companies, and at the same time, some projects have already been delivered in batches. In the field of clean energy, the company provides products such as thermal modules and thermal interface materials in application scenarios such as photovoltaic inverters and wind power converters, and some products have already been sold in batches.

Outstanding R&D capabilities to accelerate production capacity at home and abroad

The company continues to increase its R&D efforts to consolidate its leading position. In 2022, the company invested 98.898 million yuan in R&D, an increase of 23.03% over the previous year. The company targets world-class brands, and as a R&D partner for thermal interface materials for important customers, continues to work with customers to define the next generation product roadmap. In 2022, the company applied for 45 domestic and foreign invention and utility model patents, an increase of 150% over the previous year.

The company has accelerated the construction of domestic and foreign production capacity to meet the needs of the globalization of the industrial chain. The first phase of the company's Thai plant was completed and put into operation, serving consumer electronics, digital infrastructure and clean energy customers in Southeast Asia such as Thailand and Vietnam and other overseas regions nearby. At the same time, production was expanded in Wuxi and Dongguan to enhance the delivery capacity of graphite products.

Profit forecasting

It is predicted that the company's revenue for 2023-2025 will be 19.43, 23.76, and 2,888 billion yuan, EPS of 0.71, 0.83, and 0.95 yuan respectively, and the current stock price corresponding to PE is 28, 24, and 21 times, respectively. We are optimistic about the company's leading position in high thermal conductivity graphite products and perfect product layout. We covered it for the first time and gave it a “buy” investment rating.

Risk warning

Downstream demand recovery falls short of expectations, new product promotion falls short of expectations, risk of increased industry competition, risk of fluctuations in raw material prices, etc.