Key points of investment

Event: With September 18, 2024 as the grant date for the first share options, the company awarded 0.189 billion share stock options to 1412 eligible incentive recipients at an exercise price of 4.46 yuan/share. Based on the closing price of the first grant date, the unamortized fee was 0.403 billion yuan, amortized 0.085 billion/0.205 billion/0.084 billion/ for 2024/2025/2026/2027, respectively 0.029 billion yuan.

The first equity incentive award was completed, stabilizing the core backbone team to embrace the AI terminal dividend. The equity incentive was awarded to 1,412 core executives, not including directors, independent directors, supervisors, senior management, and shareholders or actual controllers holding 5% or more of the company's shares alone or in total, and their spouses, parents, and children. It helps to further improve the company's corporate governance structure, promote the establishment and improvement of incentive and restraint mechanisms, and stimulate the motivation of core technology and business personnel. The smart terminal market is gradually entering the AI era. Stabilizing the key team at an important time point will help the company fully enjoy the dividends of the high growth of the industry and achieve further progress in its own revenue and profit.

Over the past few years, the new and old businesses have entered the harvest period at the same time. In the past, most investors simply defined the company as a supplier of die-cutting and small functional structural parts, often ignoring the company's accumulation in advanced core manufacturing processes. As an invisible champion of functional parts, the company has now grown into a one-stop intelligent manufacturing service and solution provider for precision functional parts, structural parts, and modules. To achieve this industrial positioning, the company must have a deep accumulation in processes such as die-cutting, stamping, CNC and injection molding. On the basis, in line with the technological development direction of the industry, the company has independently developed various advanced core manufacturing technologies and processes such as intelligent AOI inspection systems, fully automatic product inspection and feedback adjustment systems, high-speed precision stamping technology, one-piece stamping flow, unmanned anode wire, and CNC intelligent workshop, leading the world in precision manufacturing capabilities. However, in order to mitigate the negative impact of geographical risks on growth, the company has actively deployed overseas production capacity over the past few years, and has now become one of the few Chinese fruit chain companies with large-scale production capacity overseas, especially in India.

After the layout of the past few years, the new and old businesses all performed well in the first half of this year: (1) In terms of old business, products such as die-cutting, stamping, CNC, and Sofegoods further increased in the client share, especially the increase in key customer terminal products and materials, such as Vision Pro, laptop keyboard modules, etc.; (2) new business for specific customers, new business for Android customers, and automobile business grew rapidly. Under the influence of the above aspects, mobile phone and PC-related modules have a high base of high growth, laying a good foundation for “holding back first” in annual performance and high future growth.

Demand for AI terminal cooling and battery life has increased, and Lingyi's full and in-depth participation clearly benefited from the first half of this year. Major brand manufacturers launched AI smart terminal products one after another. International A customers will launch AI terminal functions in mid-October, and mobile phone products equipped with AI functional hardware are expected to be launched next year. “AI+ hardware” is expected to drive the consumer electronics switching boom. Demand for data volume and computation volume in AI smart terminals will explode. A large number of AI models require strong computing power support to be effectively implemented. High-intensity and high-precision computing requirements will bring high capacity consumption. On the one hand, it will drive the increase in cooling requirements to ensure the normal operation of terminal products for a long period of time. On the other hand, it will test the battery life of terminal products. It can be seen that demand for products related to heat dissipation and fast charging in smart terminals is expected to increase dramatically in the future. The company has laid out various new metal structural components and power supplies Products such as adapters, ultra-thin heat evaporation plates, and steel battery cases are deeply involved in the field of “heat dissipation+power+fast charging” solutions for international A customers. The card position advantages are clear, and it is expected to clearly benefit from the future wave of AI terminals.

Investment advice: The company's net profit for 2024-2026 is estimated to be 1.92 billion, 2.855 billion, and 4,011 billion yuan, respectively. The current stock price corresponds to PE of 22.26, 14.97, and 10.66 times, maintaining the purchase rating.

Risk warning: 1. New business expansion such as new energy and servers fell short of expectations; 2. Growth in emerging markets such as structural components fell short of expectations; 3. Shipments of AR/MR products from core customers fell short of expectations.