Introduction to this report:
Lijin Technology signed a capital increase agreement with Advanced Manufacturing Fund. Institutional investors are optimistic about the development trend of the integrated die-casting industry, and the company's integrated die-casting business will continue to develop rapidly.
Summary:
Investment advice: We believe that Lijin Technology (the “Company”) has a solid long-term growth logic, and that short-term performance is expected to continue to improve, maintain the “increase in holdings” rating, and maintain the target price of HK$12.43. We expect earnings per share for the 2024-2026 fiscal year to be HK$0.620, HK$0.803 and HK$1.007, respectively. Our target price corresponds to the price-earnings ratio of 20.0 times/15.5 times/12.3 times for the 2024-2026 fiscal year.
Lijin Technology signed a capital increase agreement with Advanced Manufacturing Fund. On September 14, the company, Shenzhen Lijin, Shenzhen Lingwei, Ningbo Lijin (all indirect wholly-owned subsidiaries of the company), current shareholders and other related persons entered into a capital increase agreement and other transaction documents with Advanced Manufacturing. According to this, Advanced Manufacturing conditionally agreed to subscribe to Shenzhen Lijin with a cash capital increase of not less than RMB 1,150,000,000 and no more than RMB 1,500,000,000 and no more than RMB 1,500,000,000. If the agreement is successfully implemented, Advanced Manufacturing will complete the transaction in the form of cash. Additionally, Advanced Manufacturing has a buyback option.
The Advanced Manufacturing Fund is optimistic about the development of the integrated die-casting industry, and the transaction price may be higher than the current company valuation level. According to our estimates, the valuation space granted to the company by the Advanced Manufacturing Fund is between HK$103 billion and HK$17 billion, with a median value of about HK$135 billion. There is a certain premium compared to the company's current market value. We believe this agreement represents institutional investors' continued optimism about the company and the die-casting industry.
And the injection of capital will help the company maintain market competitiveness and maintain rapid business development.
The application of integrated die-casting solutions is the general trend, and we continue to be optimistic about the company's future performance. Currently, new car builders in China, such as Xiaopeng and Jikrypton, which are developing rapidly, have adopted the company's integrated die-casting program. In addition, traditional car companies around the world are also gradually changing their wait-and-see attitude and are actively entering into integrated die-casting solutions.
Volkswagen announced on July 26 that it has reached a cooperation agreement with Xiaopeng Motor to jointly develop two electric models. Toyota announced in June that it would launch an electric vehicle using an integrated die-casting solution in 2025. We believe global car companies will continue to commit to technological innovation and maintain strong demand for integrated die-casting solutions. As a leader in the global die-casting machine industry, Lijin Technology will continue to benefit from the increase in the penetration rate of integrated die-casting solutions.
Risk warning: the penetration rate of integrated die-casting solutions may be lower than expected; market competition may intensify