Leading component packaging consumables, vertical and horizontal integration creates high profit margins. Jiemei Technology is a leader in paper carrier tape for passive component packaging materials. It has collaborated horizontally to develop the plastic carrier tape and release film business. Over the past few years, its performance has maintained rapid and steady growth. Revenue increased from 590 million yuan in 2015 to 1.01 billion yuan in 2022, and CARG reached 11.96%; net profit increased from 89 million yuan in 2015 to 166 million yuan in 2022, and CARG reached 9.25%. The company's gross margin has remained at the level of 30%-40% for a long time. The integrated vertical and horizontal development has established the company's leading position in component packaging and consumables, and the deep moat will guarantee the company's high level of profitability. In 2023, with the recovery of the consumer electronics market, the company's revenue and net profit to mother were 1,572 million yuan and 256 million yuan respectively, up 20.83% and 54.11% year-on-year, returning to rapid growth. In Q1 '24, the company's operating rate and order volume continued to pick up. The company's revenue and net profit to mother were 363 million yuan and 53 million yuan respectively, up 17.87% and 69.19% year-on-year.

Paper carrier tape leader, continuous optimization of product customer structure. The company is a leader in the paper carrier tape niche market, with a market share of more than 60%. The company vertically opens up the entire industry chain from raw paper manufacturing to back-end slitting/punching/punching, and develops the production of supporting tape, plastic carrier tape, etc. horizontally. The development of industries such as 5G/vehicle/AI is driving the continuous increase in demand for passive components, and the production capacity of downstream passive component manufacturers is expanding in an orderly manner, driving a steady increase in demand for paper carriers. Furthermore, the trend of miniaturization of components has led to an increase in the usage of high-end perforated paper tape, and the company's share of high-end customers in Japan and South Korea has expanded smoothly. The optimization of the product and customer structure has led to a continuous increase in the average price and added value of paper tape.

The new product is expected to replicate the development path of paper carrier tape and generate new growth momentum. On the basis of the steady development of paper carriers, the company's business expanded smoothly: 1. Plastic carriers are mainly used to package large components. The company has achieved independent production of precision molds and black plastic particles and sheets as raw materials. Some customers have switched to using the company's own black PC particles and homemade sheets. 2. The downstream application of release film is widely used, and the MLCC and polarizer application market alone exceeds 10 billion yuan. The company currently has 5 domestic release film production lines, 2 wide Korean production lines, and 1 wide Japanese production line. The company has increased the release film production capacity of the South China production base project, the Zhaoqing production base project in Guangdong, from the planned annual production capacity of 100 million square meters to an annual production capacity of 200 million square meters. The first phase of the production capacity of 100 million square meters includes two lines. The first line will enter trial production before the end of 2023. The second line will be tested in the first half of 2024, and production capacity preparations are sufficient.

Profit forecast and investment rating: The company's net profit for 2024-2026 is expected to be 3.7/4.9/630 million yuan. The current market value is 24.6/18.3/14.4 times PE, respectively. The company's valuation is lower than the average valuation of comparable companies. The company's paper carrier business advantages are consolidated, and it is expected to resume growth as demand for downstream passive components picks up. In addition, new businesses such as plastic carriers and release films are expected to continue the trend of traditional business development. The performance is expected to accelerate growth. The first coverage will give a “buy” rating.

Risk warning: Downstream demand recovery falls short of expectations; new business expansion falls short of expected risk; release of new production capacity falls short of expected risk.