The founder started with technology and built a complete strategy of “three horizontal and three vertical”. The company provides new functional coatings in the field of high-end consumer electronics+passenger cars+special equipment, and uses the above three businesses as a vertical system, and uses the horizontal development of “paint+ink+adhesive” products to build the company's “three horizontal and three vertical” strategic system. Shareholding is concentrated. The founder and his co-actors hold 52.8% of the company's shares. The founder has a professional technical background and has presided over a number of patent research and development, which is conducive to the development of the company's core technology. The scale of revenue has increased steadily, and the overall gross margin is stable. Net profit last year was under phased pressure as R&D investment continued to increase, and R&D investment was gradually realized this year. In 2023, the company achieved revenue of 0.59 billion yuan, +18.17% year on year; net profit to mother 0.081 billion yuan, -1.45% year over year; 24H1, the company expects to achieve net profit of 0.04 billion yuan, +50-60% year on year.
3C ushered in a recovery, and the booming development of new energy sources is driving the domestic industrial chain. (1) Demand side: Industry recovery+new demand for high-end consumer electronics brought about by new technology. We estimate that the market size exceeds 11 billion yuan; domestic NEV production accounts for half of the global market, and the rise of the industry drives the development of the domestic industry chain. We estimate that automotive coatings exceed 40 billion yuan, of which the market size of NEV coatings is nearly 15.8 billion yuan, including body paint, repair paint, exterior parts paint, and power battery coatings. From the demand side, whether it's high-end consumer electronics or new energy vehicle coatings, the market size is very impressive. (2) Supply side: The entry threshold for the industry is high, and it is difficult for new participants to enter: ① High technical barriers, fast product updates and iterations; ② complicated certification procedures and long cycle; ③ the unit value of paint is small, customers are stable, and it is difficult to enter. Paint suppliers are still dominated by established foreign paint companies such as AkzoNobel and PPG. The main reason is that the previous 3C and automobile manufacturers were mainly foreign brands. With the rise of domestic 3C and new energy vehicle manufacturers, the trend of domestic substitution in the entire industry chain is clear, and the market share of domestic paint companies in the industry is expected to increase significantly.
Company highlights: A leader in the high-end consumer electronics industry, targeting leading domestic and foreign NEV manufacturers. (1) According to the company's prospectus, in 2019 (forecast value), the company ranked fourth in the global market share of 3C coatings, after AkzoNobel, PPG, and Berger, with a market share of 6.37%, leading other domestic brands by 2.21pct; in 2019, the company had a market share of 10.33% for 3C coatings in China, second only to industry leader AkzoNobel. We judge that the company's concentration in the industry remains at a high level. In the future, as the vertical expansion of customers continues to strengthen, there is still room for further increase in market share. Targeting leading manufacturers of new energy vehicles at home and abroad, automotive coatings are expected to break through. (2) The company provides interior and exterior coating products for leading domestic NEV companies such as BYD, NIO, Ideal, Geely, GAC, etc.; at present, domestic NEV production is high, and the company is expected to use interior and exterior coatings as an entry point to break through entry restrictions in the car body paint and repair paint market and seize market share based on stable relationships with core customers.
“Interactive” R&D + “customized” marketing. The company carries out technology and product research and development with an R&D model mainly based on “interactive” independent research and development, and the CAGR reached 19.8% in 20-23, which continued to be high. In '23, the company invested 90.29 million yuan in R&D, and the R&D cost rate was 15.31% (16.07% in 24Q1). The company mainly uses a “one-to-one customization” in-depth marketing model.
Investment advice
We expect that in 2024-2026, the company will achieve revenue of 0.785/1.021/1.312 billion yuan, a year-on-year growth rate of 33.1%/30.0%/28.6%, net profit of 0.117/0.152/0.204 billion yuan, a year-on-year growth rate of 44.5%/30.1%/33.37%, corresponding to EPS 1.05/1.36/1.82 yuan, corresponding to 35.38 yuan on August 7, closing price 33.74/25.94/19.40x PE. The first coverage gives a “buy” rating.
Risk warning
Production capacity release falls short of expectations, new product development progress falls short of expectations; downstream demand falls short of expectations; costs are higher than expected; systemic risks.