Introduction to this report:

The company's consumer electronics-related revenue is developing rapidly, driven by the folding machine market. It is expected that the folding machine market will continue to expand in the future, and the company will benefit deeply.

Key points of investment:

The increase rating was maintained, and the target price was raised to $20.79 (+4.04). We maintained the company's 2024-2026 EPS forecast at 0.67/0.99/1.31 yuan, respectively. Considering the rise in the average market valuation level and the company's growth, we gave the company 21x PE in 2025, raised the target value to 20.79 (+4.04) yuan, and increased its holdings rating.

The high growth in the MIM sector further validates the folding machine trend. With the launch of new products from major customers, 24H1's MIM business revenue increased 101.11% year-on-year. Currently, it has 5 folding machine hinge module production lines, and has implemented a development model from folding machine MIM parts to MIM parts+modules. At present, the company has a clear development strategy in the MIM sector. Shanghai Fuchi is an R&D center, marketing center and manufacturing demonstration center for the MIM industry to further expand downstream applications and customers of MIM. Dongguan Huajing is a MIM industrial base close to the industrial chain and high quality in South China. The Lianyungang MIM production base is committed to building a low-cost, modern production base, which is expected to continue to benefit the development of the folding screen industry.

The penetration rate of folding machines increased rapidly, and sales continued to grow at a high rate. According to IDC data, in the second quarter of 2024, China's folding screen phone shipments reached 2.57 million units, a year-on-year growth rate of 104.6%. Based on China's total smartphone shipments of 71.58 million units in the second quarter, the folding machine penetration rate reached 3.6%; in terms of share, Huawei steadily topped the list with 41.7%, and Vivo's market share with X FOLD 3 rose to second place, reaching 23.1%. Honor relied on Magic Flip's share in the second quarter to reach 23.1%. At 20.9%, OPPO ranked fourth with an 8.4% share. Since July, many terminal brand manufacturers have released their new folding machine products. Due to the intensive release of new models in the second half of the year and the increase in product lines of major manufacturers, we expect that the folding phone market in China will continue to grow rapidly in the second half of the year, and the company, as a leading domestic MIM hinge company, is expected to continue to benefit.

Catalysts: The penetration rate of folding screens continues to increase; the company's share continues to rise.

Risk warning: traditional demand falls short of expectations; market competition intensifies.