Description of the event
On May 24, Shanghai Lanjian Hongqing Technology Co., Ltd. submitted Advance Information (API) to the International Telecommunication Union (ITU). The document outlines plans for a constellation called Honghu-3 (Honghu-3), which will launch a total of 10,000 satellites on 160 orbital planes.
Incident reviews
The construction of satellite constellations is accelerating, and there is great potential for commercial space development. The Honghu constellation program appears to be the third giant constellation of more than 10,000 satellites planned by Chinese entities. It follows the National Grid Plan and the G60 Starlink proposal supported by Shanghai, both of which have been approved by China's National Development and Reform Commission. At the end of 2023, commercial space was first included in the Central Economic Work Conference. In 2023, a total of 13 private rockets were launched across the country, setting a new record for China's commercial space development in the past eight years. China's commercial space industry is entering a period of rapid development. 2024 will be a critical year for China's commercial space development.
Adding liquid rocket engine materials will continue to benefit from the rapid development of commercial aerospace. The company is deeply involved in the special copper alloy industry, expanding and investing 510 million yuan to build an industrialization project for liquid rocket engine thrust chamber materials, parts, and components. It is expected to produce an annual output of about 300 tons of forgings, 400 sets of rocket engine injector panels, and 1100 sets of rocket engine thrust interior walls and exterior wall components. Among them, forgings and thrust interior walls have already been supplied in small quantities. After completion, the project will continue to drive the company's performance growth and expand brand influence.
Develop optical module bases and power grid equipment to achieve multi-pole growth. Optical modules are a key part of supporting computing power centers and data centers. Optical module chips above 400G have greatly increased their cooling requirements, and the replacement trend of copper alloy materials is clear. With technical reserves and precision processing capabilities, the company can provide an overall solution for manufacturing raw materials and processing of finished products for optical module bases. In terms of power grid equipment, the domestic market share of the company's products is more than 60%, and the global market share is about 50%, making it number one in the global industry segment. Power grids are a weak link in the energy transition. In recent years, many countries around the world have launched power grid investment and transformation plans to increase policy and financial support. In October 2023, the US Department of Energy announced the allocation of nearly US$3.5 billion to support 58 projects to improve the reliability of the US national power grid; the EU launched a 4.5 trillion power grid investment upgrade plan, and issued grid action plan rules in November 2023 to further refine EU grid construction measures to resolve the contradiction between grid aging and growing grid demand. After the optical module sector and power grid equipment expansion and production capacity are fully put into operation, it will bring overall growth to the company's performance development.
Profit forecasting and valuation
The first coverage gave a “Buy-A” rating. The company focuses on the R&D and manufacturing of copper-based special materials. The traditional power grid equipment sector has the highest market share, building a moat for the company's performance; at the same time, it is expanding into high-end fields such as liquid rocket engines, optical module bases and cases, and medical imaging equipment with core preparation technology to expand the company's performance in multiple dimensions; the continuous release of additional production capacity is expected to accelerate the growth of the company's performance. The estimated net profit for 2024-2026 is 1.39\ 2.00\ 287 million yuan, EPS 0.25\ 0.36\ 0.51 respectively, corresponding to the company's closing price of 12.52 yuan on May 29, and PE of 50.3\ 35.0\ 24.4 for 2024-2026, respectively. For the first time, coverage gives a “buy-A” rating.
Risk warning
The risk of additional production capacity cannot be absorbed; the risk of uncertainty in developing a new product market; the risk of fluctuating raw material prices and hedging management.