Investment highlights
For the first time, Ling Yunguang (688400) was covered to give it an outperforming industry rating. The target price was 19.80 yuan. Based on the price-earnings ratio valuation method, it corresponds to 45 times P/E in 2024. The reasons are as follows:
The “eye” and “brain” of industry drive growth through penetration and localization. We believe that machine vision empowers the extreme, unmanned, and intelligent manufacturing industry, and has sufficient momentum to improve penetration.
CMVU expects the scale of visual components and systems to exceed 40 billion yuan in 2024, and the CAGR will reach 35% from 2021 to 2024; visual equipment used for visual inspection is only popular in the PCB, display, printing and other industries, and there is plenty of room to replace quality inspectors in 3C and other industries. We estimate that the localization rate of vision systems will be about 60% in 2022; due to misplaced competition among vision equipment manufacturers, Ling Yunguang is leading the share in 3C, printing and other industries.
“Vision+AI” technology is leading, and platform-based expansion capabilities are strong. Ling Yunguang launched VisionWare, an underlying self-developed algorithm platform in 2008. Its performance can be compared to overseas leaders, and in 2022, it established F.Brain, a general model for the industrial field, to solve technical problems in the industry. The company's R&D investment in 2023 accounts for 25.4% of its own business revenue. It lays out a full chain of advanced imaging hardware, software algorithms, automation and other technologies, and deeply cultivates “AI+ vision” technology to provide diverse solutions. Based on a complete underlying technology platform, the company has strong cross-field layout capabilities and serves a wide range of leading customers in various industries such as 3C, new energy, stereoscopic vision, printing, and new displays.
Emerging sectors are flourishing, and I am optimistic that net interest rates will continue to rise. 1) Consumer electronics: The company broke through high-end visual inspection equipment for mobile phone assembly, with revenue of 666 million yuan in 2023. We believe that the Foxconn system is expected to continue to drive potential incremental demand; 2) New energy: expanding from photovoltaic glass/lithium battery diaphragm defect inspection equipment to vision systems at the battery manufacturing side; 3) Metaverse: providing optical motion capture solutions, with a revenue CAGR of 16.3% from 2021 to 2023. We believe virtual reality technology is expected to further industrialize. Furthermore, based on component manufacturing and business structure optimization, we predict that the company's net interest rate is expected to rise from 2.6% in 2019 to 7.0% in 2025, unleashing flexibility in performance growth.
What is our biggest difference from the market? The market believes that the digital human business is the company's main growth point. We have sorted out the company's growth drivers by business segment in detail. We believe that short-term growth is still driven by the increase in machine vision penetration rate, and long-term stereoscopic vision is expected to begin rapid growth.
Potential catalysts: 3C visual inspection equipment launched new products, orders from major customers exceeded expectations; AI+ vision and lithium battery vision systems formed batch shipments; net interest rate increased beyond expectations.
Profit forecasting and valuation
We expect the company's EPS for 2024-2025 to be 0.44 yuan, 0.56 yuan, and CAGR of 25.8%, respectively.
We gave the company 45 times P/E in 2024, corresponding to a target price of 19.80 yuan, a potential increase of 19%. The current stock price is 37.4 times the P/E corresponding to 2024 and 29.6 times the P/E corresponding to 2025. For the first time, coverage gives a rating that outperforms the industry.
risks
Downstream demand has declined; market competition has intensified; profitability is difficult to improve; technology research and development has failed.