Investment summary
The leading company for PCB drills ranks first in the industry in terms of market share. Dingtai Hi-Tech is a high-tech enterprise specializing in providing integrated solutions for tools, materials, and equipment for enterprises in the fields of PCB and CNC precision parts, and has independent R&D and innovation capabilities. The company has been deeply involved in the PCB miniature tool industry for more than ten years and has developed into a leading manufacturer in this field. In 2020, the company had a market share of about 19% of global PCB drill sales, ranking first. In recent years, with the development of the PCB industry towards high density and high performance, the PCB manufacturing process has changed to a trend of microporation, thinning, and multi-layering, and the share of demand for high-end drills is expected to increase. The company has a rich product line, and has independent R&D and production capabilities for high-end micro drills and coated drills below 0.2 mm. It has strong technical strength and is expected to fully benefit from the increase in demand for high-end drill bits brought about by the upgrading and development of downstream industries. Furthermore, as the only domestic tool manufacturer that has achieved self-development of equipment, the company can not only flexibly grasp the pace of production expansion, but also effectively improve product production efficiency and reduce production costs, and has strong competitive strength. Currently, the company is promoting the expansion of high-end drill production capacity and overseas market business. With the release of future production capacity and market development, the company's market share and profitability are expected to further increase.
Develop the CNC tool business and seize the golden period of domestic replacement. In recent years, with the transformation and upgrading of the manufacturing industry, the CNC rate of machine tools has gradually increased, driving the demand for CNC tools to continue to grow. At the same time, high-end domestic application enterprises are more willing to use domestic tools, and import substitution of high-end CNC tools has ushered in development opportunities. The company is positioned as a high-end CNC tool. In recent years, it has achieved cost reduction and efficiency through improving product structure, self-developed production equipment and optimized processes. The product profit level increased to 29.71% in 2022. In the future, the company will expand tool production capacity, mainly standard knives and wire taps, and revenue is expected to continue to increase.
Lay out the functional film business and open up a second growth curve. The company grasped the development opportunities of functional membranes in due course and established Chaosmart New Materials in 2017 to develop the membrane product business. The company has a wide variety of membrane products. Among them, mobile phone security films are positioned in the middle and high-end market and have domestic alternative properties. The product has been delivered in batches. The release of orders in the first half of the year drove a significant increase in membrane product revenue. In 2023H1 functional film products, revenue was 27.75 million yuan, +93.17% over the same period last year. The company also lays out functional film products such as automotive anti-privacy films and mini-LED films ahead of schedule to actively promote product development and market promotion. In the future, with the smooth development of the market and mass production of products, membrane products are expected to create a new performance growth curve.
Investment advice
The company is a leading global PCB drill needle enterprise. Through product structure optimization and high-end drill production capacity development, the company is actively developing a diversified business layout for functional film products, CNC tools and automation equipment, and has great potential for future development. We expect the company to achieve revenue of 12.8/17.2/2.14 billion yuan in 2023-2025, respectively, up 4.7%/34.7%/24.4% year on year; realized net profit of 2.4/3.2/4.1 yuan, up 8.7%/31.6%/27.7% year on year. The current stock price corresponding to the 23-25 valuation is 34/26/20 times, respectively.
First coverage, giving a “buy” rating.
Risk warning
Downstream market demand falls short of expectations, PCB drill technology replacement risks, sharp fluctuations in raw material prices and supply risks, the company's production capacity release falls short of expectations, new business expansion falls short of expectations, etc.