Key points of investment:

Leading aluminum heat transfer material, revenue has been growing at a high rate for many years. At the beginning of its establishment in 2008, the company established the direction of aluminum heat transfer, and has accumulated growth over the past ten years; in 2018, the company ranked first in the domestic production and sales volume of aluminum heat transfer materials. From 2018 to 2023, the company's revenue increased from 3.42 billion yuan to 9.29 billion yuan, the 5-year CAGR reached 22.12%, the company's net profit to mother increased from 0.17 billion yuan to 0.9 billion yuan, and the 5-year CAGR reached 39.56%.

Demand for new energy continues to grow, the traditional car market is booming, and energy storage+liquid cooling+air conditioning opens up room for imagination. (1) New energy vehicles:

Compared with the nearly double increase in the amount of aluminum thermal materials used in traditional automobiles, we estimate that the global amount of aluminum thermal materials for new energy vehicles will reach 0.46 million tons in 2026, and the CAGR will reach 18.92% from 2023 to 2026. (2) Fuel vehicles: Fuel vehicle exports have continued to grow due to Russian demand. The CAGR has reached 85.90% in the past 3 years. We estimate that new fuel vehicles in China will require 0.2245 million tons of aluminum heat transfer materials in 2026, and the CAGR will reach 16.46% from 2023 to 2026. (3) Automobile aftermarket: We estimate that in 2026, China's automotive heat exchanger maintenance market will require 0.0648 million tons of aluminum heat materials, and the 2023-2026 CAGR will reach 5.66%.

(4) Energy storage and data centers: Electricity demand is driving the development of the energy storage industry. Data center computing power increases driving cooling needs, and aluminum heat transmission materials are expected to continue to benefit. (5) Air conditioning market: There is a clear trend of replacing aluminum with copper in foreign air conditioners. With the promotion of industrialization in China and the increase in consumer awareness and acceptance of “aluminum instead of copper”, terminal replacement applications are expected to gradually open up.

The expansion of industry capacity continues to verify prosperity, and the company's production capacity planning is leading and profitable. In 2023, the scale of the proposed and ongoing domestic aluminum sheet and foil project reached 5.51 million tons, continuously verifying the prosperity of the industry. In the aluminum thermal segment, Grangis reached an agreement with innovative new materials to build a project with an annual output of 0.32 million tons; Yinbang Co., Ltd. to expand production by 0.35 million tons; and the company's Chongqing Phase II to expand production by 0.15 million tons. The production and sales ratio reached 98.75% in 2023; at the same time, the company's net interest rate in 2023 was 9.7%, leading the industry average.

With the triple advantage of strong R&D, good equipment, and high-quality customers, the Chongqing base expanded production by 0.15 million tons to provide additional growth. With strong R&D strength and world-class core equipment, the company combines high-quality customer resources (overseas auto parts company DENSO, German Mahle Group, Korea Hanang Group, mainstream domestic heat exchange manufacturers Sanhua, Yinlun, and Nabaichuan), and its product quality and comprehensive strength have been widely recognized. After the second phase of the Chongqing 0.15 million ton project is completed, it is expected to increase the current production capacity by about 39%. At the same time, the scale effect will be further strengthened, empowering the company's new growth momentum.

Profit forecast and rating: We expect the company's net profit to be 1.21/1.4/1.69 billion yuan in 2024-2026, with year-on-year growth rates of 34.14%/16.19%/20.28%, respectively. The PE corresponding to the current stock price is 14/12/10 times, respectively. We selected Dingsheng New Materials and Innovative New Materials as comparable companies. The average PE in 2024-2026 was 17/13/11 times, respectively. As the leading domestic aluminum heat transfer material, the company benefited from the increase in the use of aluminum heat materials for new energy vehicles and air transmission out of traditional vehicles. Energy storage, data centers, and air conditioning are expected to empower long-term space. First coverage, giving a “buy” rating.

Risk warning: risk of demand fluctuations; risk of project construction falling short of expectations; risk of fluctuations in raw materials; risk of new business expansion falling short of expectations; risk of deviations in market space estimation.