A leading domestic chip inductor, a high-quality enterprise under the influence of big waves. Shunluo Electronics is one of the top three chip inductor manufacturers in the world and the number one in China. It has been developing high-intensity R&D for ten years, accounting for more than 7% of R&D expenses all year round.
The company's performance spanned the cycle. After going public in 2007, revenue CAGR was 27% in 15 years, and profit declined in just 22 years. The company is a high-quality leading enterprise proven by history. It has world-leading benchmark customers in various fields, but it does not rely on a single major customer. In '23, the largest customer only accounted for 5.48% of revenue. The company's products cover a comprehensive range of applications, covering high-growth circuits such as mobile phones, ICT, automobiles, and energy storage. The products include EMC components, inductors, transformers, etc., with sufficient reserves, comprehensive material numbers, and long-term growth capacity.
Since 3Q23, mobile phone stocking has accelerated, and the consumer electronics boom has picked up. The company's performance in '22 was affected by the pandemic and geopolitics. It declined for the first time until 3Q23, when the traditional peak season for consumer electronics began, compounded by the return of Huawei phones, which led to a full recovery of Android phones. According to Canalys data, the 4Q23 global smartphone market grew 8% year-on-year to reach 320 million units, ending seven consecutive quarters of decline, and the consumer electronics sector picked up. Based on the recovery in the utilization rate of traditional products and the release of various new products, the company's revenue reached record highs for 3 consecutive quarters from 2Q23 to 4Q23, and gross margin increased for 4 consecutive quarters.
LTCC and integrated inductors have entered the release period, and international customers have accelerated their introduction under the impact of the earthquake in Japan. The company began developing LTCC in 2005 and began batch supply in '19. Since then, production has continued to expand. In '23, new products were launched to support major customers, and LTCC sales increased dramatically over the same period last year. Integrated inductors were also supplied in large quantities in '22, and large- and small-size models and WTX product types were deployed. Product sales volume has been remarkable since '23. Furthermore, the earthquake in Japan in early '24 caused the Murata Anamizu Plant to stop production, affecting the supply of inductive products. Some Murata customers are in demand for transfer orders. The company is expected to seize the verification window, accelerate the introduction of major overseas customers, and increase its global share.
With a diversified layout, automobiles and optical storage are gradually becoming the main driving force for the company's medium- to long-term growth. New energy vehicles are the fastest-growing market for magnetic devices, and TDK predicts that global demand for automotive inductors will double that of 2020 by 2030. The company has been developing automobiles for many years, and its product range has continued to be rich. It already covers automotive battery management systems, autonomous driving systems, OBC, vehicle networking, headlight control systems, etc. Customers include world-leading Tier 1 companies and automobile manufacturers such as Bosch and Valeo. In terms of optical storage, the company's products cover all kinds of power transformers, power inductors, etc., and have been recognized by domestic and foreign benchmark companies. The share of revenue from the automobile and optical storage business increased steadily, from 5% to 14% in 19-22, which is expected to be the main driving force for the company's long-term growth.
Profit forecast and valuation: Considering that the company continues to introduce high-end new products such as LTCC and integrated molding inductors during the upward cycle of the consumer electronics boom, and has laid out business volumes for many years, we expect the company's net profit to be 9.3/11.5/1.43 billion yuan in 2024-2026, giving the company 24-year 30-31x PE, corresponding to a target price of 34.70-37.01 yuan, maintaining a “buy” rating.
Risk warning: Risk of downstream demand falling short of expectations, risk of new product expansion falling short of expectations.