Investment summary

Deeply involved in laptop keyboard backlight modules, Mini LED backlight product applications continue to expand. Relying on long-term technology accumulation in the field of light guide film manufacturing, the keyboard backlight module has entered the supply chain of leading international laptop manufacturers such as Lenovo and HP. The penetration rate of the company's laptop backlight modules in global notebooks is about 40%, and this share is expected to continue to increase in the future. In the first half of 2024, with the gradual elimination of inventory from major laptop manufacturers, combined with AI PCs driving a new wave of laptop switching, TrendForce Jibang Consulting expects global laptop shipments to increase by 3.60% year-on-year in 2024, thus driving the company's backlight module business revenue to stabilize. Based on micro-nano hot stamping technology, the company continues to expand the application extension of Mini LED backlight products: high-value-added integrated MiniLED keyboard backlighting products are expected to become the company's business growth direction; according to Geshe Auto data, the domestic smart cockpit penetration rate will exceed 60% in 2023. The company's forward-looking layout, automotive backlight products have now been delivered in small batches, and are expected to be embedded in leading domestic car dealers in the future.

The ultra-compact waterproof switch broke the international monopoly, and the epitaxial acquisition of Xinweixing strengthened its precision structural parts business. The company's ultra-compact waterproof light touch switches have broken the monopoly of Japanese manufacturers such as Panasonic and Nishitetsu. The product protection and safety level has reached IP67 standards, and imported replacement of related products has been achieved. Currently, they have passed factory inspection and acceptance by manufacturers such as Huawei, and there is broad scope for cooperation. Xinweixing has been deeply involved in the 3C consumer electronics field for many years, and was able to achieve efficient business collaboration after merging into the company. Xinweixing focuses on products such as precision connectors and hardware shields. It directly supplies terminals from leading brands such as Huawei, Xiaomi, Honor, and Lenovo, and is also embedded in the supply chains of companies such as Huaqin and Wingtai. The company and Xinweixing are expected to complement each other's advantages and share resources in technology research and development, customer resources and supply chain. The company will also use this acquisition to officially enter precision connectors and gradually develop supporting products for new energy vehicles. Currently, they have been delivered to end customers such as BYD and Kaivo Auto, and it is expected that the company's performance will continue to increase in the future.

The FPC & CCS module business goal is to enter the power/energy storage battery supply chain, and high investment helps shift the company's business core to the new energy sector. The total planned production capacity of China's leading power battery companies in 2025 exceeds 3 TWh; lithium-ion energy storage batteries, as the core of electrochemical energy storage, have a CAGR of 136.42% of global shipments in 2020-2022, driven by terminal demand. At present, the company has planned 12 million sets of CCS modules and 39 million sets of FPC modules. CCS products have received orders from customers in the field of energy storage, and production and delivery are progressing smoothly. We believe that the new business significantly boosts the company's performance while helping to switch the company's basic business from consumer electronics to the new energy sector.

Investment advice

The first coverage gives a “buy” rating. The company's traditional business is expected to gradually pick up with the recovery of consumer electronics. After the acquisition of Xinweixing, precision key switches and Xinweixing's precision structural parts business are expected to promote each other by efficiently utilizing their advantages in the field of precision processing, and the new energy business is also expected to develop rapidly under market demand. The company is expected to achieve net profit of 2.09/2.60/300 million yuan in 2024-2026, corresponding PE of 20/16/14 times, respectively.

Risk warning

The recovery in the consumer electronics sector fell short of expectations, industry competition intensified, and new business development fell short of expectations.