Key points of investment
Start the heat-shrinkable materials business and lay out “new materials+new energy” in depth
The company was founded in 1998 and has four business segments: electronics, electricity, wires and new energy. In 2019-2023, the company's revenue increased from 3,978 billion yuan to 5.723 billion yuan, a four-year CAGR of 9.52%; net profit to mother increased from 210 million yuan to 700 million yuan, and a four-year CAGR of 35.21%. 2024Q1 achieved operating income of 1,389 million yuan, an increase of 21.62% year on year; net profit to mother was 184 million yuan, an increase of 77.27% year on year.
Wire sector: the volume of high-speed communication lines is expected to drive a sharp rise in volume
The company's wire series products are operated by Leting Smart Link, which mainly include products such as high-speed communication cables, automobile cables, industrial cables and consumer electronics cables. Leting Smart Link's high-speed communication lines are mainly used for data signal transmission in data centers, servers, switches/industrial routers, etc., and some products have reached the international advanced level. Luting Smart Link's high-speed communication line products have been supplied in batches to leading customers in various industries, such as Amphenol, Hollis, Morse, Tyco, and Lixun. At present, both 400G and 800G high-speed communication lines have achieved stable mass production. The single-channel 224G high-speed communication line is still being tested with major customers such as Amphenol.
Electronic sector: The absolute leader in the heat-shrinkable materials market. Continued breakthroughs in the high-end field. Since its establishment, the company has been deeply involved in the domestic heat-shrinkable materials industry and has occupied a large share in the domestic heat-shrinkable materials industry. The competitiveness of the company's traditional products continues to improve, and the sales scale continues to expand. At the same time, the market share of the company's electronic products in the nuclear power, automobile, rail transit and other industries has gradually increased. Some products can be used in automotive, aviation and other fields, and some heat-shrinkable casing products have entered COMAC's supply system.
Power sector: It is expected that it will continue to benefit from increased investment in power grids and the rapid development of new energy sources. The company's power series products mainly cover various application fields and cable accessories and separable connectors of various voltage levels, etc., and the total scale is at the forefront of the industry. The company vigorously expands the market for high voltage, UHV and other products, accelerates the development of cable accessories and intelligent products for the new energy industry, and actively lays out overseas markets. Furthermore, the company continues to break through in its nuclear grade cable accessory products, and the number of winning bids is among the highest in China, which is expected to contribute to increased performance.
New energy sector: Hengqiang, the leading charging gun leader. Wind power contributes to stable cash flow. The company's NEV related products mainly include electric vehicle charging guns, charging stands, high-voltage wiring harnesses and high-voltage connectors in vehicles. At present, the company's national standard DC charging guns have a share of more than 60% in the domestic market and are in a leading position in the industry; high-power liquid-cooled charging guns have been supplied in batches, and customer order demand continues to grow. In addition, the company has 3 wind farms with a total installed capacity of 144.2 MW connected to the grid, which can bring stable cash flow to the company.
Profit forecasting and valuation
First coverage, giving a “buy” rating. The company is firm in its strategic goal of “new materials and new energy” and is deeply involved in the electronics, electricity, wire and new energy business, and its performance is expected to maintain a high growth rate. We expect the company's 2024-2026 net profit to be 8.50, 10.25, and 1.01 billion yuan, respectively, with year-on-year growth rates of 21%, 20%, and 17%; EPS is 0.67, 0.81, and 0.95 yuan/share, respectively, corresponding to PE 20, 17, and 14 times, respectively. Taking into account the company's growth and a certain margin of safety, we gave the company an average valuation of 25 times that of comparable companies in 2024, corresponding to a target market value of 209 billion yuan and a target stock price of 16.6 yuan, corresponding to the current market value, with room for 21% increase.
Risk warning
Macroeconomic environment and policy risks; increased risk of market competition; risk of fluctuations in raw material prices