Incidents:
On November 23, 2023, the company stated on the interactive platform that Honor is an important customer and partner of the company. The company provides customers with electromagnetic shielding solutions and related products, and cooling solutions and related products.
Investment highlights:
As an important partner of Huawei, the company's profit end may show an inflection point 1) Performance situation: 2023 Q1-Q3, net profit increased compared to 2022, and performance showed a rebound trend. The company's equity incentive performance assessment index is 2023-2024 with a revenue of at least 3.7/4.2 billion yuan.
2) Cooperation with Huawei: The company has been cooperating with Huawei since 1997, and has cooperated in the fields of servers and communication equipment. 2023H1 accounts for about 18% of customer revenue. Benefiting from mass production of some customer projects and increased mobile phone shipments, the 2023H2 revenue share is expected to increase.
Communications business: The communication+server business is two-wheel drive, benefiting from AI computing power to bring cooling requirements 1) Server field: The company provides solutions and products related to cooling and electromagnetic shielding to customers such as Huawei and Superfusion. Customers include: Huawei, ZTE, Microsoft, Cisco, Wave, Xinhua-3, Hyperfusion, Shenzhou Kuntai, etc.
2) Business advantages: ① Product: attaches importance to R&D and innovation, has a complete product line, and realizes upstream and downstream integrated manufacturing; ② Customer service: Participate in customer product development and design, and provide localized services by combining domestic manufacturing bases with domestic manufacturing bases and sales outlets at home and abroad.
3) The company is expected to benefit from increased demand for liquid cooling. Large models drive rapid growth in computing power demand, and liquid-cooled cooling will become the best choice under high computing power. We believe that the company provides liquid cooling/siphon products for servers, etc., and is expected to continue to benefit from increased demand for liquid cooling in the future.
Consumer electronics may benefit from the development of Huawei mobile phones+AI PCs, with significant growth in the new energy business 1) Consumer electronics: ① Mobile phones: The sales volume of products such as the Huawei Mate60 mobile phone is expected to recover, and the company's consumer electronics business may benefit in the long term; ② PC: The development of AI PCs brings demand for cooling and electromagnetic shielding, and the company's products are expected to continue to benefit.
2) New energy: ① New energy vehicles: The company supplies Huawei cars and charging stations, and has the qualification of a Xiaomi supplier. The company is expected to continue to benefit as the mass production of related products and sales volume recover in the future. ② Photovoltaics and energy storage: The company's radiators, integrated die-castings and other products have been delivered to customers such as Huawei and Sunshine Power.
Profit forecast and investment rating: As a leading enterprise in solutions such as electromagnetic shielding and thermal conductivity applications, the company is expected to continue to benefit from server cooling requirements brought about by the development of AI computing power, as well as increased demand in the fields of communications, consumer electronics, and new energy in the future. We expect net profit from 2023-2025 to be 1.71/4.18/ 581 million yuan, EPS is 0.30/0.72/1.00 yuan/share, respectively, and the current stock price corresponding to PE is 60.45/24.75/17.82X, respectively, covering the first time, giving it a “buy” rating.
Risk warning: Demand from major customers falls short of expectations, increased competitive risk, risk of exchange rate fluctuations, risk of price fluctuations of major raw materials, policy development falling short of expectations, etc.