The penetration rate of multiple motors and 800V is expected to increase rapidly, driving the rapid growth in demand for automotive-regulated film capacitors. Multi-motor systems can output stronger power, have better acceleration performance and higher control accuracy, and are therefore favored by various new energy vehicle manufacturers. All Tesla models offer multi-motor versions, and all NIO models only have dual-motor versions. As the cost of multi-motor systems decreases and control algorithms mature, the penetration rate of multi-motor systems is expected to increase rapidly. Generally, a single motor requires a DC-Link capacitor, and multi-motorization will drive a significant increase in demand for DC-Link capacitors.

Car companies are relieving anxiety about range and charging time by increasing the vehicle voltage system from 400V to 800V. Since 2021, the sales volume and number of 800V high-voltage models have shown a rapid growth trend, and the market penetration rate has also increased steadily. The Gesch Auto Research Institute predicts that the 800V high pressure penetration rate is expected to rise from 4% in 2023 to 20% in 2026. The unit price of DC-Link capacitors on the 800V platform increased by about 10% compared to the 400V platform. As the 800V high voltage penetration rate increases, the unit price of various automotive capacitors is expected to increase. Driven by multiple motors and the rapid increase in 800V penetration rate, the value of bicycle film capacitors is expected to increase dramatically.

Farah is in the first tier of the world, and automation is combined with integrated construction cost advantages. Farah Electronics has been in the field of thin film capacitors since the last century, focusing on the main business for a long time. In 2007, it became the top three film capacitor manufacturers in the world. At present, the technical parameters of Farah electronic products have reached or surpassed the level of major international manufacturers, and the technical advantages are outstanding. Farah Electronics has extended upstream and achieved self-production of metallized films, which can not only improve the quality and stability of products, but also greatly reduce product costs. It has a significant cost advantage over manufacturers that have not achieved self-production of base films. Farah Electronics continues to promote automated production, effectively reducing labor costs. The share of labor costs fell from 29.48% in 2016 to 17.34% in 2023. With integration and automation, Farah has built a cost advantage over its peers.

Profitability surpassed peers, and cash flow performance was excellent. Farah Electronics' gross margin and net profit margin are not only far ahead of peers, but are also basically stable, mainly due to its excellent management capabilities, ability to produce raw materials on its own, and automated production capabilities. Farah Electronics' ROE and ROIC are far ahead of their peers, and have remained stable over a long period of time. Since 2015, Farah Electronics' revenue rate and net present rate have basically stabilized at around 1, and have been above 1 for many years. Over the past 3 years, Farah Electronics' revenue rate and net present ratio have basically been above 1, indicating that Farah Electronics' profit quality is very high and cash can be recovered in a timely manner. Furthermore, the company's net cash flow has been positive for many years. Since 2015, the cumulative net cash flow has been positive, and the company's cash flow performance is excellent.

Investment advice. Driven by multiple motors and the rapid increase in 800V penetration rate, the value of bicycle film capacitors is expected to increase dramatically. Farah Electronics is in the first tier of the world, and automation superimposes integrated construction cost advantages. Farah Electronics has excellent management capabilities, is far ahead of its peers in profitability, and remains stable. At the same time, it has excellent cash flow performance. We expect the company's net profit for 2024-2026 to be 1.163, 1.46, and 1.854 billion yuan, respectively, with growth rates of 13.59%, 25.53%, and 26.97%, respectively. The PE corresponding to the current price is 22.14, 17.64, and 13.89 times, respectively, covering the “buy” rating we gave Farrah Electronics for the first time.