Asahi Electronics: Trinity layout of electric vacuum devices, military products, and electronic ceramics. Xuguang Electronics underwent a shareholding system transformation from the former state-owned Xuguang Electronics Tube Factory in February 1994 and was listed on the main board of the Shanghai Stock Exchange in 2002.

The company has formed a three-in-one product layout of electric vacuum devices, military products, and electronic ceramics. It is the only high-tech enterprise with innovative technology in the entire industry chain from metal parts processing, precision ceramic manufacturing to intelligent electrical equipment. The company announced an equity incentive plan in May 2023. The performance indicators are net profit due to mother for 2023-2025 of 1.2/168/260 million yuan, respectively (excluding share payment fees) to ensure the company's long-term performance growth. In the first three quarters of 2023, the company achieved operating income of 901 million yuan, an increase of 11.78% over the previous year, and realized net profit of 74 million yuan, an increase of 35.39% over the previous year.

Focus on the electric vacuum device business to build the core competitiveness of military support. Electric vacuum devices: Vacuum switch tubes and fixed pole columns are the company's main products and are domestic first-line brands. With the increase in social demand for electricity and the implementation of electricity investment and infrastructure projects, it is expected to further drive demand for products such as vacuum arc extinguishers, fixed poles, and complete high and low voltage power distribution devices, and AC/DC high voltage fast switches. Military products: The subsidiary Eeger Machinery is engaged in precision casting and precision machining of core structural parts of high-end equipment in the military industry. As a military enterprise that also has the ability to integrate precision casting, precision machinery manufacturing, assembly, and general control, it has obvious advantages in production scale, technical level, management ability, etc., and its comprehensive capabilities rank at the forefront of the segment. The subsidiary Xi'an Ruikong Chuanghe is committed to the R&D, production and sales of autonomous and controllable embedded computer systems. In 2022, it accounted for more than 50% of R&D personnel, and the number of R&D personnel increased by more than 100% over the same period last year.

The electronic ceramics business has broad room for growth. The electronic ceramics industry continues to grow as demand increases in 5G communication technology innovation, electronic components, intelligent equipment and other industries. Taking aluminum nitride powder as an example, the domestic market demand is expected to be about 5,600 tons by 2025, and there is still a gap between domestic supply and demand. The company plans to increase its speed in the electronic materials industry. According to the company's announcement, after the completion of the electronic encapsulated ceramic material expansion project, the company will add 430 tons of high-performance aluminum nitride powder and 951 thousand pieces of electronic ceramic products. After the completion of the electronic ceramic materials industrialization project (phase 1), the company will have an annual production capacity of 5 million aluminum nitride ceramic substrates, 1.2 million silicon nitride ceramic substrates, 11,000 aluminum nitride structural parts, 60,000 high-temperature multi-layer co-fired aluminum nitride ceramic substrates and 60,000 pieces of high-temperature multi-layer co-fired alumina ceramic substrates.

Performance prediction, valuation and rating: Xuguang Electronics focuses on the electric vacuum devices, military products, and electronic ceramics industries, with broad room for growth. We forecast the company's revenue for 2023-2025 to be 1,395/16.98/2.125 billion yuan, and net profit to mother for 2023-2025 is 1.32/1.82 billion yuan, corresponding to PE 55/40/27X.

We believe that the company's layout in the electronic ceramics industry has sufficient momentum for long-term growth. Currently, there is a large gap between domestic aluminum nitride supply and demand. Domestic replacement imports is expected to become a future trend, and the expansion of the company's production capacity guarantees long-term growth. The first coverage gives an “gain” rating.

Risk warning: risk of raw material price fluctuations; risk of product technology innovation; risk of fierce market competition.