Key points of investment:
Internal growth and extension go hand in hand, focusing on a “two-wheel drive” development strategy for consumer electronics and new energy businesses.
When Higashiyama Seimitsu was founded, it was mainly engaged in precision sheet metal and stamping business. After listing on the Shenzhen Stock Exchange in 2010, three major business segments of printed circuit boards, optoelectronic displays, and precision manufacturing were formed through endogenous epitaxial methods, and performance continued to grow at a high rate. In 2019-2023, revenue grew from 23.5 billion to 33.7 billion, CAGR was 9.33%, and net profit to mother increased from 0.703 billion to 1.964 billion yuan, and CAGR was 29.28%. The PCB business is the company's core business and basic market. The PCB business accounted for 69% of revenue in 2023, and the revenue CAGR for 2019-2023 was 12.2%. Thanks to the rapid increase in demand for precision manufacturing in the NEV sector, the company's precision component business also continued to grow, with a revenue CAGR of 12.7% in 2019-2023. In 2023, the PCB business showed good resilience in the face of weak consumer electronics. Other businesses were affected by the downturn in the industry in 2023, and profit margins declined.
The consumer electronics FPC market is huge, and terminal innovation continues to bring new demand. The PCB market is expected to exceed 90 billion US dollars in 2028. As an important category, FPC is huge. The Chinese market alone is expected to exceed 180 billion yuan in 2027, and the CAGR for 2021-2027 is expected to be 8.5%. The company grew rapidly after entering the FPC market through the acquisition of the American subsidiary MFLEX in 2016, and is currently the second largest FPC manufacturer in the world. From a downstream perspective, the number of FPC stand-alone devices continues to increase due to innovative smartphone functions. The rapid development of new hardware forms has spawned FPC demand, and the company will continue to benefit.
Automobile business: Double growth of major customers and increased value of bicycles. The company can provide NEV customers with various products such as PCBs (including FPC), vehicle screens, and functional structural components. Looking at product categories, the company's automotive products are divided into three categories: precision manufacturing, in-vehicle displays, and automotive FPCs. Among them, there is huge room for development in precision manufacturing, and the value of the company's bicycles is expected to continue to increase. The company has a long history of precision manufacturing experience, mature heat dissipation and aluminum alloy processing technology, and lays out functional structural parts for new energy vehicles. The company has a global production and sales service system, and has provided lightweight aluminum alloy products to well-known car companies in the industry. In the future, it will further deepen its stickiness with customers through multiple industrial chains and integration.
Profit expectations and investment recommendations
We expect the company's 2024-2026 revenue to be 37.2/43.6/49.8 billion yuan, net profit to mother of 2.327/3.073/4.033 billion yuan, and P/E multiples of 16/12/9.5 ×, respectively. We believe that the company has a leading position in the industry and is expected to benefit from the wave of end-side AI, giving it a “buy” rating for the first time.
Risk warning
Demand for downstream mobile phones falls short of expectations, end-side AI's demand for component innovation falls short of expectations, and the company's application development falls short of expectations