Investment highlights
For the first time, it covered Tonghe Technology (300491) to outperform the industry. The target price was 26.05 yuan. Based on the SOTP valuation method, it was given 27.4x P/E in 2024, corresponding to a target market value of 4.53 billion yuan. The company mainly supplies charging modules, which are the core components of charging piles, and ranked second in market share among pure domestic third-party suppliers in 2022. The reasons are as follows:
Demand from the global charging pile industry resonates, and the core component charging module benefits. Driven by policy support and growing demand for charging, global charging pile construction will accelerate. Among them, charging modules are the core components of charging piles, directly benefiting from the boom in charging pile construction. We estimate that the global charging module market is expected to reach 16.3 billion yuan in 2025, and the CAGR for 2022 is 45.3%.
As a standard product, charging modules are highly concentrated in the industry. We believe that technology, cost, and customer resources are the core competitive factors. Furthermore, overseas markets have large profit margins and strong barriers, and the overseas layout of domestic enterprises has become an industry trend.
Technology, cost, and customer certification advantages helped the company's charging module performance grow rapidly. In terms of technology, the company has deep technical accumulation and leading product performance in the industry. In terms of cost, the company has built a comprehensive cost advantage of the product through domestic replacement of core components, topology optimization, and scale effects. We estimate that in 2022, the company's cost per watt was lower than that of Youshang, and the cost advantage is expected to increase in 2023 as scale increases. In terms of customer certification, the company has passed EU CE certification and has entered Siemens' global supply system. We expect orders from overseas customers to gradually increase in 2024-2025, promoting increased profitability. We are optimistic that the company will continue to increase its market share and support performance growth through technology, cost and customer advantages, and that the revenue CAGR for 2022 may exceed 60%.
The smart grid business is growing steadily, and the aerospace business is expected to benefit from domestic replacement. 1) Smart grid: The intelligent transformation of power grids and the construction of distribution grids accelerated during the “14th Five-Year Plan” period, and the company is expected to grow steadily with the industry. 2) Aerospace special power supplies: Rising demand combined with domestic substitution supports the boom in the industry. Our wholly-owned subsidiary Howell Power has advantages in qualifications, technology and customer resources. We expect that our market share will continue to increase, and the volume of high-profit customized power supplies is also expected to increase profit levels.
What is our biggest difference from the market? The market believes that the domestic charging pile industry is fully competitive, and the target alpha attribute is weak, but we are optimistic about the company's strong cost control capabilities and technical level, which can be expected to use cost advantages to increase market share, support rapid growth, and maintain a good level of profit.
Potential catalysts: 1) The introduction of the charging pile policy, and large-scale tenders from CNPC and Sinopec led to an upward beta in the industry; 2) The company's overseas progress exceeded expectations.
Profit forecasting and valuation
We expect the company's 2023-2025 EPS to be 0.61/0.95/1.38 yuan, respectively, and the CAGR will be 49.8%.
For the first time, the “outperforming industry” rating was given, and a target price of 26.05 yuan was given using the SOTP valuation method, of which the NEV business was valued at 3.21 billion yuan; the current stock price and target price correspond to 34.8x/22.5x/15.5x P/E and 42.5x/27.4x/18.9x P/E for 2023-2025, with 22.1% upside.
risks
The progress of going overseas fell short of expectations, and untimely payment of some business payments affected cash flow and the risk of impairment of goodwill.