Higashiyama Seimitsu released its quarterly report for '24. Higashiyama Precision achieved revenue of 7.745 billion yuan in the first quarter, up 18.94% year on year; net profit to mother was 289 million yuan, down 38.65% year on year; the company further focused on the “two-wheel drive” development strategy for the consumer electronics and new energy business, and the core business continued to grow steadily.
Consumer electronics continues to achieve steady growth, and mobile phone stand-alone value increases & XR brings new volume. Almost all components on a smartphone require an FPC to connect it to the motherboard, and FPC usage has been gradually increasing due to internal space requirements. Higashiyama ranked second in the global market share in the segmented flexible circuit board sector. The consumer electronics business maintained high revenue and profit levels, and continued to grow. We expect the next generation of iPhone FPC usage to increase, while the company's module size will increase this year, driving the value of Higashiyama FPC to increase at the same time. With the introduction of new products such as MR, FPC usage in the wearable sector has further increased. We expect the company to reach the target of 4 billion US dollars in revenue from major customers in the future.
Higashiyama is deeply involved in precision manufacturing to create a second growth curve. Revenue from the NEV business in '23 increased 168% compared to the same period last year, and we expect our own portion of the automotive business to grow by 50% + this year. The company mainly provides customers with products such as precision metal structural parts, electronic circuits, and touch display modules for new energy vehicles, energy storage, communication equipment, etc. The booming NEV industry is injecting new vitality into its traditional precision manufacturing business. The penetration of new energy vehicles is accelerating, and their PCB usage is 5-8 times that of traditional cars. Higashiyama fully embraces major US customers. It is one of the few upstream suppliers that can provide various products and comprehensive solutions such as PCBs (including FPCs), automotive screens, and functional structural components for NEV customers. In the future, the advantages of multiple industrial chains and integration will further deepen the stickiness of companies and customers.
Focus on core tracks and products, and continue to strengthen business cooperation with leading customers in the industry. The company's Q1 R&D expenses increased by about 31% year-on-year to 253 million yuan. The company accelerated the expansion and layout of the NEV product line, investment in new bases, certification of new customers, mass production of new products, etc. At the same time, the company continuously strengthened internal integration and collaboration through internal optimization of resource allocation to actively meet customer needs.
Profit forecast and investment advice: We expect revenue for 2024/2025/2026 to be 371/419.47.1 billion yuan, up 10%/13% year on year, net profit to mother of 25/30/3.5 billion yuan, up 26%/22%/17% year on year. The current stock price corresponding to 2024/2025/2026 PE is 10/8/7X respectively, maintaining the “Highly Recommended” rating.
Risk warning: downstream demand falls short of expectations; macroeconomic risks; increased trade frictions