Core viewpoints
AMOLED has broad potential, production capacity, yield to enhance the release of demand: AMOLED display panel has the advantages of excellent picture quality, healthy eye protection, energy saving and power saving, and is more feasible in functional integration, environmental adaptation and plastic shape, and has great application potential. With the gradual enrichment of smartphone 5G replacement and smart wearable products, the demand for AMOLED is expected to increase rapidly. The application of vehicle, flat panel / laptop has just started, and there is a huge space for penetration in the future. With the increase of production capacity and yield, the cost of AMOLED will continue to decline, accelerating the release of demand. The domestic layout is perfect, and it has become an AMOLED production base second only to South Korea. It is expected that China's global AMOLED production capacity will continue to increase, and the focus effect of the industry will bring Chinese manufacturers such as Hehui in raw material supply, talent and other advantages, and continue to reduce costs and increase efficiency.
Hehui has many advantages, and its market share is increasing rapidly. Hehui is a domestic manufacturer that seldom focuses on AMOLED technology, and its products are widely used in mainstream mobile phones, watches, tablets and other terminals. compared with other manufacturers in the industry, the company has many advantages: 1) team advantage: experienced management and technical team; 2) customer advantage: the company has accumulated a series of high-quality customers such as Huawei, XIAOMI, Oppo, Vivo, Lenovo and so on. 3) Manufacturing advantages: Hehui has many years of experience in the continuous improvement of key equipment, material formula and production process. In addition, the company also has profound accumulation in brand, R & D and industrial operation. Benefiting from multiple competitive advantages, the company's market share has increased rapidly, with the company's AMOLED panel's global market share rising sharply from 1.91% to 4.57% from 2017 to 2019, according to Omdia.
Capacity expansion further enhances market competitiveness and opens room for growth: the company plans to raise 10 billion yuan, of which 2 billion yuan is used to supplement working capital and 8 billion yuan is invested in capacity expansion projects, mainly for the purchase of production equipment and power systems. After the project reaches production, the company will add 15K pieces / month of G6 generation AMOLED display panel production capacity to help unleash the sales potential of smartphone, tablet / laptop and car panel products and increase the company's market share. At the same time, the expansion of production scale is expected to enhance the profitability of the company.
Profit forecast and valuation
We predict that the company's 21-23 net profit is-6.26,1.50 and 767 million yuan respectively, and the net assets are 197,199,20.6 billion yuan respectively (including the 10 billion yuan raised by IPO). Considering that the company has not yet made a profit, the industry attaches great importance to assets, and PB is a commonly used relative valuation method in the panel industry, so we choose the valuation method of PB and DCF. We believe that the reasonable overall market value range of the company after this public offering is 80-81.3 billion yuan. Under the assumption that the over-allotment option is not used, the estimated value per share of the company is 6.01-6.06 yuan.
According to the audited net assets in 2020, the corresponding PB range is 7.79-7.86 times; according to the forecast net assets in 2021, the corresponding PB range is 4.09-4.12 times. As of April 7, 2021, the static average price-to-book ratio of "C39 computer, Communications and other Electronic equipment Manufacturing" in the same industry was 4.39 times.
Risk hint
Core hypothetical risks: lower-than-expected revenue from smartphones, smart wearable, tablet laptops, cars and other panels; the risk that gross profit margin increases fall short of expectations
Other potential risks: valuation risk; hypothetical risk of raising funds; risk of high capitalization rate of R & D investment; risk of being replaced by flexible AMOLED panel; iterative risk of showing technology upgrade; risk of dependence on import of key equipment and raw materials; increased risk of competition; risk of customer stability; risk of customer certification; risk of asset impairment; lower than expected government subsidies; risk of COVID-19 epidemic; risk of rising raw material prices. Single risk of product structure; risk of technology being overtaken or replaced by insufficient investment in R & D; risk of loss of core technical personnel and leakage of core technology; risk of macroeconomic and industry fluctuations; risk of industrial policy change; the company has the risk of persistent losses and accumulated unmade losses