Mergers and acquisitions expand the technology platform. The three business platforms collaborated to develop the company, which started with powder metallurgy structural components (P&S) and expanded its business map through mergers and acquisitions, and has now successfully entered the first tier of the soft magnetic composites (SMC) and metal injection molding (MIM) industries. The company's three main businesses fall under the same broad category of powder metallurgy. Essentially, they are of the same origin, making it easier to integrate with each other and produce synergistic effects. In the future, the company is expected to give full play to the scale effect and collaborative advantages and enter a rapid growth path.

The prospects for MIM are promising. The folding screen trend is expected to boost demand for MIM. MIM technology has broken through the limitations of the metal powder molding process in terms of product shape, and can efficiently produce precision structural components with high precision, high strength, and micro specifications. The complex folding hinge structure of folding screen phones brings new opportunities to the MIM industry. According to IDC data, the market size of folding screen phones in China will reach 14.8 million units in 2027. With the gradual recovery of the consumer electronics industry in the second half of the year 23, the MIM business can be expected in the future. According to data from the China Powder Metallurgy Branch, the company's market share in the Chinese MIM market reached 13% in 2022. Technology and scale are in the first tier of the industry. As a leading supplier of mobile phone hinges, the company is expected to fully benefit from the recovery of the industry.

SMC leverages the rise of new energy sources to accelerate the construction of production capacity

Soft magnetic powder cores are suitable for the new energy industry due to their material characteristics. The company grasps the opportunities brought by the development of the new energy industry. Thanks to the rapid development of the photovoltaic and new energy vehicle markets, the SMC sector has entered a fast track of growth. The company currently has a production capacity of 36,000 tons of metal soft magnetic powder cores and is promoting the “soft magnetic materials project with an annual output of 60,000 tons” at the second production base in Shanxi.

This production capacity layout will help improve the company's competitiveness, exert scale effects, reduce costs and increase efficiency, and further increase product gross profit margin.

Investment advice

We expect the company's operating income in 2023-2025 to be 41.89/52.05/5.992 billion yuan, net profit of 1.89/3.10/367 million yuan, EPS of 0.31/0.5/0.6 yuan, closing price of 13.51 yuan on December 11, 2023, corresponding PE of 44/27/23 times, covering the company's “increased holdings” rating for the first time.

Risk warning

Downstream demand falls short of expectations, upstream raw materials fluctuate, and technological development falls short of expectations.