Core views:
Oak Technology is the leading domestic household paper equipment leader. Revenue is growing steadily and profitability is good. The 2022 revenue/net profit is 5.17/183 million yuan, the 2018-2022 revenue/net profit CAGR is 29.17%/44.25%, and the gross margin of the main business has basically stabilized at 50%. The company has an outstanding competitive advantage in the field of household papermaking equipment. It is one of the few equipment vendors in the industry with full-line delivery capabilities, and its customers cover leading downstream companies. The sector's performance is expected to maintain steady growth in the future.
At the same time, with technical commonality, the company has entered the field of lithium battery diaphragm equipment, broken through customers and formed sales orders. With order delivery and production capacity release, the company's sector performance is expected to enter a period of rapid growth.
The traditional paper equipment industry is stabilizing, and the company's leading position is stable, forming stable cash flow and performance support:
Industry: The amount of paper used per capita in China continues to increase, and downstream household paper companies continue to expand production. At the same time, in the context of enhanced environmental protection and continuous optimization of the household paper consumption structure, household paper equipment continues to be upgraded. According to data from the Paper Association, the total production capacity of the four leading household paper companies in 2021 was 5.767 million tons/year, and the total production capacity is expected to reach 9.012 million tons by 2025. The household paper equipment industry is expected to grow 7-15% in the next three years.
Company: The company is one of the few domestic enterprises with the ability to deliver a full line of household paper. The technical level is leading and the customer qualifications are high. On the technical side, the company's technical level and product quality are comparable to European and American competitors. With its cost performance ratio and supporting service advantages, it has achieved domestic equipment import substitution; on the customer side, the company has established long-term stable cooperative relationships with the four leading downstream paper companies Jinhongye, Hengan Group, Zhongshun Jierou, and Weida Group to benefit from the expansion of production and equipment iteration acceleration in the future. We expect the future sector's performance growth rate to maintain a high single-digit compound growth rate.
With the commonality of technology entering lithium battery diaphragm equipment, customers have made breakthroughs, which is expected to drive the company's high growth:
Industry: Benefiting from the increase in demand for new energy vehicles and energy storage terminals, demand for lithium battery diaphragms is growing rapidly. We have counted the production capacity plans of 8 leading domestic diaphragm factories, and the diaphragm production capacity will be 45.9 billion square meters by 2025. Based on the calculation that a single diaphragm production line has a diaphragm production capacity of 150 million square meters and a single diaphragm production line worth 200 million yuan, the total demand for the lithium battery diaphragm equipment market from 2022 to 2025 is 48.653 billion yuan. Currently, diaphragm equipment is mainly monopolized by foreign manufacturers, and production capacity is locked down by leading diaphragm factories, and there is plenty of room for domestic replacement.
Company: Lithium battery diaphragm equipment and household papermaking equipment have certain similarities in terms of technical principles and equipment structure, and the requirements for tension control, line speed, width, etc. of paper making are all higher than diaphragms. According to the announcement, the company has signed a wet diaphragm production line contract with Guanli New Materials. The order amount for the first production line is 88 million yuan (tax included). With the company's full line order verification and production capacity release, the sector's performance is expected to enter a stage of rapid growth.
Investment advice:
We expect the company's revenue in 2023-2025 to be 8.39/12.68/17.34 billion yuan respectively, with year-on-year growth rates of 62.33%/36.76%/36.78% respectively, and realized net profit to mother of 2.95/4.46/ 624 million yuan, respectively. The year-on-year growth rates were 35.14%/35.18%/35.97%, respectively. The growth was outstanding. For the first time, it was given an investment rating of Buy-A. The target price for 6 months was 107.02 yuan, corresponding to PE 16X in 2024, covered for the first time, giving “buy-A” ” Ratings.
Risk warning: The company's new technology research and development falls short of expectations, the company's new product verification falls short of expectations, new customer development falls short of expectations, customer concentration is high, and downstream demand growth falls short of expectations.