Gaowei Electronics was founded in 1997 and has been deeply involved in camera modules for decades. Currently, it mainly supplies front-end camera modules for Apple's smartphones and tablets, which are deeply tied to Apple. In 2020/2021/2022, a single major customer accounted for 97%/99%/99% of revenue. As an affiliate of Lixun Precision, Lijing took a stake in Gaowei Electronics in 2021. Up to now, Lijing has held 72.25% of the shares. After Lijing took a stake, the company's board of directors was restructured, and ties with Lixun Precision were strengthened. As a deep partner of Apple, Lixun Precision is a deep partner of Apple. This cooperation will help improve Gaowei Electronics' manufacturing process and further promote cooperation between Gaowei Electronics and Apple in more optical fields.
Demand side: Camera module business demand is stable, and it is expected to enter the mobile phone rear camera and headphone market in the future.
Camera modules are mainly used in mobile phones, electric vehicles, tablets, and laptops. Among them, the mobile phone market is in greatest demand. Sales of Apple products have been stable in recent years, and video innovation has become the focus of innovation for major mobile phone manufacturers in recent years. Demand for camera modules will grow further in the future.
Currently, the company is mainly focusing on the field of pre-photography, and the mobile post-camera market is even larger. If the company can further break into post-photography, it will drive further growth. In addition, Gaowei Electronics may participate in the Vision Pro camera module for Apple's newly released head-display device. In the future, as new products are released, it will also drive Gaowei Electronics' performance to increase.
Supply side: The Apple industry chain is relatively closed, and the current competitive pattern is relatively good. Apple camera modules are mainly in FC packages. Unlike the COB of Android phones, they have certain technical barriers. With OFILM's withdrawal from the Apple camera module business in 2021, there are currently only three Apple camera module manufacturers left: LGInnoTek, Sharp (Foxconn), and Gaowei Electronics. Among them, mobile phone rear camera modules are mainly provided by LG Innotek and Sharp (Foxconn), with LG Innotek accounting for more than 60%.
Judging from Apple's experience in adjusting the industrial chain in the past, due to negotiation advantages and production capacity risk considerations, Apple will generally hope to have three suppliers providing key components. In the past two years, Gaowei's capital expenses have been high, and it is hoped to enter the field of mobile phone afterphotography in the future.
Automotive lidar opens a second growth curve. Thanks to the launch of urban NOA (Navigation Assisted Driving), lidar has appeared in the plans of many car companies one after another due to its excellent performance. Lidar applications in the passenger car and light commercial vehicle markets tripled in 2022 and are expected to reach $3.92 billion by 2028. In 2022, Gaowei Electronics and leading lidar manufacturer Suteng Juchuang reached a strategic cooperation and established a joint venture, Dongguan Liteng Innovation Electronics Co., Ltd. In the future, with the further increase in demand for lidar, Gaowei Electronics will begin a second growth curve.
First coverage, giving a “buy” rating. The company's revenue for 2023-2025 is estimated to be US$1,129/18.82/US$2,968 million, and net profit attributable to the parent company of US$0.67, 1.11/180 million, respectively, corresponding to PE of 30.17/18.22/11.23 times.
Risk warning: Consumer electronics recovery is weak, sales of Apple products fall short of expectations, and increased industry competition