The company is a leader in the domestic powder segmentation circuit, a leading domestic carbonyl iron powder and a leading atomized alloy powder company. Downstream deep processing products include soft magnetic powder, MIM feeds, and absorbent materials. We believe that with the rapid development of the downstream folding screen market and high-power market, including high-voltage fast charging scenarios for new energy vehicles, AI servers, etc., the company's various businesses are expected to experience rapid growth. We are optimistic about the company's long-term growth, giving the company 35 times PE in 2024, corresponding to the target stock price of 56 yuan, coverage for the first time, and a “buy” rating.
Focusing on powder materials for 20 years, downstream demand ushered in a structural explosion. The company was founded in 2004, focusing on new materials for metal powders. The products cover two major ultrafine metal powders: carbonyl iron powder, atomized alloy powder, and deep-processed products corresponding to downstream soft magnetic powder, MIM feed, absorbing materials, 3D printing materials, etc. The products are widely used in consumer electronics (folding screens), automobiles (automotive electronics, electromagnetic suspension, soft magnetic motors), military (absorbent materials) and many other downstream high-end scenarios.
Powder materials: Carbonyl iron powder accounts for more than 40% of the domestic market, and the amount of cost reduction and efficiency is rising. Compared with precious metal powders, the company's main carbonyl iron powder has good structure, electromagnetism, and wear resistance, and has a wider distribution of resources, which is extremely cost-effective. According to the company's announcement, the domestic carbonyl iron powder production capacity currently accounts for about 40% of the global production capacity, and the company's domestic market share is over 40%. The company currently has a production capacity of 5,000 tons/year, and another 6,000 tons/year of fund-raising production capacity is under construction. It is expected that the market share will increase further after the fund-raising project is completed, and global substitution will continue. In terms of profitability, the gross margin of the company's carbonyl iron powder has been above 45% in the past 3 years, and profitability is strong. It is expected that in the future, it will continue to improve profitability through process upgrades such as introducing iron slag as a raw material.
Downstream Highlight 1: Folding screens lead to an explosion in demand for MIM materials and focus on the progress of customer introduction. MIM (metal injection molding) is currently one of the most promising manufacturing technologies. MIM has natural advantages in miniaturization, customization, and mass production. We expect the company to benefit first from the explosion of the folding screen mobile phone market, and then continue to benefit from increased demand for highly complex components in military, medical, automotive and other fields. Based on the application requirements of folding screen mobile phone hinges, the company has developed a series of special powder materials with high yield strength. Currently, it is in a batch verification state with downstream terminals, and production is gradually rising. Downstream customers include well-known applications and manufacturers such as Jingyan Technology and Samsung Electric.
Downstream Highlight 2: With the advent of the high power era, soft magnetic materials have ushered in new opportunities. Application scenarios for new energy vehicles, photovoltaics, and servers are gradually expanding to high frequency and high power, including structural performance upgrade requirements such as high-power charging piles, high-voltage fast charging models, and AI servers, which will bring new growth points to various upstream high-power materials. Metal and alloy soft magnetic materials have better performance at medium to high frequencies. Corresponding company demand for carbonyl iron powder and alloy powder is expected to change. In addition, innovative applications such as soft magnetic motors and electromagnetic suspensions will also bring new growth points to the company.
Risk factors: the risk of increased competition in the industry; the risk that the construction of fund-raising projects is not progressing as expected; the risk of large fluctuations in raw material prices; the recovery of the consumer electronics industry falls short of expectations; and the company's new customer development falls short of expectations.
Profit forecast, valuation and rating: The company is a leading domestic carbonyl iron powder and atomized alloy powder company. Downstream deep-processing products include soft magnetic powder, MIM feeders, and absorbent materials. As downstream industries, including new energy vehicles, photovoltaics, and server application scenarios gradually expand to high frequency and high power, and folding screen phones enter a period of rapid development, the company's various business growth is outstanding. We expect the company's 2023/24/25 EPS to be 1.11/1.61/2.26 yuan, respectively. Refer to the company's new materials, Dongqian New Materials, etc. Mutsu Stock Valuation Level of value (Wind unanimously predicted an average of 31x PE in 2024, an average of 0.6x PEG). Taking into account PE valuation and PEG valuation methods, we gave the company 35 times PE in 2024, corresponding to the target stock price of 56 yuan, coverage for the first time, and a “buy” rating.