The company's recent situation
Recently, Lingyi Zhizao released 2024 equity incentives (draft). The incentive plan aims to grant 1,463 people a total of 238 million stock options, accounting for 3.40% of the total share capital.
reviews
Issuing equity incentives bind core backbone to help the company grow steadily in the future. According to the company announcement, the equity incentive targets the core cadres of the company and its subsidiaries, excluding senior directors and supervisors. The incentive grant conditions stipulate that 2024-26 operating income or net profit attributable to mother will increase by no less than 10%/20%/30% compared to 2023, respectively. At the same time, the announcement made it clear that the grant price was 4.46 yuan, and management expenses for 2024-27 were increased by 0.50/1.71/0.72/027 million yuan, respectively, for a total amortization fee of 320 million yuan. We believe that the main purpose of this equity incentive is to bind core middle level key personnel, guarantee the stability of the company's middle management structure, and ensure the company's medium- to long-term core competitiveness and future growth momentum.
The trend of Apple's AI terminals is clear, and it may start a three-year switching wave, and the benefits of Linyi are obvious. With Apple releasing the new Apple Intelligence on WWDC24 in June, we think Apple has officially announced its entry into the AI terminal era. Due to memory and computing power limitations, Apple Intelligence only supports upgrades for iPhone 15Pro series users, and users of other models cannot experience it. We believe that Apple's AI upgrade is quite impressive. Siri Assistant is gradually moving towards AI agent positioning, and combined with ChatGPT-4O to enable users to access without registration, greatly improving convenience. We expect that current active iPhone users are expected to complete the new AI device switch in the next 2-3 years, and it is expected that the 3-year dimensional switching wave will begin. As Apple's leading supplier of structural parts and functional parts, Lingyi is expected to take the lead in benefiting from the increase in shipments brought about by the wave of switching.
AI phones may welcome component upgrades, and the overall product layout of Lingyi is expected to blossom more. We expect the iPhone 16/17 series to be an iconic product of Apple's AI phones. Considering that AI phones have higher requirements for internal structure design, heat dissipation, battery and charging efficiency, these components and modules may be significantly upgraded in the next two years, driving value growth. Lingyi's product layout is comprehensive, and it is expected to have forward-looking cards in the fields of VC heating plates, steel case battery structural parts, and fast charging. We are optimistic that the company's related products will cooperate with major customers in the future to achieve product introduction and promote simultaneous growth in the company's revenue and profit.
Profit forecasting and valuation
Equity incentive fees will not be considered yet, but due to pressure on the gross margin of the old product, we lowered the profit 2024/25e EPS 9/ 8% to 0.30/0.37 yuan. The current stock price corresponds to 2024/25e 18.5/14.9xp/E. We maintain the rating of Lingyi outperforming the industry. Considering that the market is already under pressure on Lingyi's performance, compounded by the recent positive sentiment in the fruit chain and an upward shift in the industry valuation center, we still maintain a target price of 7.0 yuan, corresponding to 2024/25e 23.2/18.7x P/E, and there is room for 25% increase compared to the current one.
risks
Apple's AI terminal shipments fell short of expectations; progress in the introduction of products related to Lingyi fell short of expectations.