Incidents:

On August 5, 2024, the company announced that Lianchuang Optoelectronics plans to acquire 8% of Lianchuang Superconducting shares held by Jiangxi Electronics Group Co., Ltd. for 356.8 million yuan, and plans to acquire 3% shares of Lianchuang Superconductivity held by Gongqingcheng Zinojia Investment Center (Limited Partnership) for 133.8 million yuan. After the transaction is completed, the company's shareholding ratio in Lianchuang Superconductor will increase from 40.00% to 51.00%, and obtain 3 of the 5 seats on Lianchuang Superconductivity's board of directors to become the controlling shareholder of Lianchuang Superconductor and include it in the scope of the consolidated statement.

Comment:

Lianchuang Superconductivity is a professional comprehensive solution provider for high temperature superconducting magnet application technology. 1) Since Lianchuang's superconducting high temperature superconducting induction heating equipment was produced in parallel in the production workshop of a central enterprise customer in March 2022, it has continued to operate smoothly. 2) At the beginning of 2023, Lianchuang Superconductivity and downstream users jointly developed and successfully integrated high-temperature superconducting magnets with the photovoltaic N-type silicon furnace system in terms of control and structure, developed a high-temperature superconducting magnetically controlled monocrystalline silicon growth furnace, and received batch product orders. 3) In the field of controlled nuclear fusion applications, Lianchuang Superconductivity has successively completed the design of REBCO cluster cables and high-temperature superconducting D-type magnets based on cluster cables. On November 12, 2023, the Jiangxi Provincial People's Government signed a comprehensive strategic cooperation framework agreement with CNNC. Under this framework, Lianchuang Superconductivity and China Nuclear Fusion (Chengdu) Design and Research Institute Co., Ltd. signed an agreement. The two sides plan to jointly build a fusion and fission hybrid test reactor project. The technical target Q value is greater than 30, and the total investment plan for the project exceeds 20 billion yuan.

Lianchuang Superconductor was profitable for the first time in 2023 and is expected to develop rapidly in the future. Lianchuang Superconductor's 2023 revenue was 75.4 million yuan and net profit was 6.79 million yuan. As of the announcement date, Lianchuang Superconductor had orders of 492.04 million yuan, the framework agreement order amount was about 1115.1 million yuan, and the intended customers and amounts being tracked were estimated to be 81.5 million yuan. The transaction's performance promise is as follows: Lianchuang Superconductor's cumulative net profit attributable to the owner of the parent company in the 2024-2026 audited consolidated statement shall not be less than 600 million yuan.

Investment proposal: In 2019, Lianchuang Optoelectronics began implementing the main development strategy of “moving forward, retreating in an orderly manner”, laying out high-temperature superconductivity and lasers as the company's industrial transformation and upgrading development direction, and determining that high-temperature superconductivity and lasers are the company's two main businesses to focus on in the future. The acquisition of shares in Lianchuang Superconductivity will help achieve the company's industrial layout in the field of high temperature superconductivity and enhance the company's sustainable profitability, so we have raised our profit forecast. The company is expected to achieve revenue of 3.837/4.526/5.324 billion yuan in 2024-2026, net profit of 0.501/0.721/0.977 billion yuan, corresponding EPS of 1.10/1.58/2.15 yuan, corresponding to PE24.77/17.23/12.71X, maintaining a “buy” rating.

Risk warning: Laser and superconductivity business development falls short of expectations, and performance and valuation judgments fall short of expectations