Matters:
On April 12, 2024, the company released its performance forecast for the first quarter of 2024: The company expects to achieve net profit of 6200-71 million yuan (YOY 48.95%-70.57%), with a median value of 66.5 million yuan (YOY 59.76%); deducting non-net profit of 60-70 million yuan (YOY 61.85-88.82%), and a median value of 65 million yuan (YOY 75.34%).
Net profit is expected to increase significantly during the reporting period. The main reason is (1) with market development and gradual increase in production capacity, the company's operating income has achieved steady growth (2) the company has always attached importance to R&D innovation, insisted on technology and product innovation as the core strategy, and provided solid support for product competitiveness, diversified development of industry customers and product projects through continuous R&D investment, thereby driving steady growth in overall comprehensive capabilities.
Commentary:
The die-cutting market space is vast, and the company has been laying out the die-cutting business for more than ten years and has entered a harvest period. After years of layout, the company has established good cooperative relationships with major customers. In 2018, the company ranked among Apple's top 200 core suppliers in the world, and became a supplier to internationally renowned customers such as Google. With the release of production capacity, the consumer electronics business has entered a harvest period. The company's deducted non-net profit has increased for 10 consecutive quarters since 2021 Q3. The 24Q1 performance forecast shows a median non-net profit deducted value of 65 million yuan, which is expected to increase 75.34% year over year.
Huayangtong serves major customers, and the server business benefits from the general trend of AI development. Huayangtong is based on the digital precision structural parts business and is a qualified supplier to Huawei. In 2023, ChatGPT set off an AI revolution, and hardware such as servers and switches ushered in a new round of development as computing power infrastructure. The company cooperates with leading domestic customers in the field of servers and switches. The corresponding products are mainly the core components of digital communication devices such as computing power servers, storage servers, switches and routers, providing them with solutions with functions such as frame insertion, protection, and cooling, which have profoundly benefited from this round of AI hardware development.
The expansion of businesses such as charging piles and energy storage is imminent, and the status of a platform-based supplier has been established. Huayangtong started with digital structural components and successfully expanded into new fields such as charging piles and energy storage. Charging piles: Huawei's supercharged liquid cooling solution accelerates the penetration of charging piles. In the first half of 2023, the company became a qualified supplier for well-known brands such as Huawei and Xiaopeng Motors, and received a small number of orders. Energy storage: The company has layouts for household storage, industrial and commercial energy storage, and photovoltaic inverters.
Huayangtong has deep accumulation in the field of metal parts. At the same time, the company has complete assembly capabilities and can provide customers with one-stop services. The company has successfully expanded from the field of digital communication for major customers to business fields such as charging piles/servers/energy storage, and the company's position as a platform supplier is prominent.
Investment advice: The company's consumer electronics business has entered a harvest period for many years, and the wholly-owned subsidiary Huayang Tongshutong, charging piles, energy storage and other businesses have successfully entered the second track of performance growth. We predict that the company's net profit for 2024-2026 will be 50/ 70/ 90 million yuan. Referring to comparable companies Lingyi Intelligent Manufacturing, Lixun Precision, and Anjie Technology, the average valuation of the comparable company in 24 years was about 17X. Considering the company's growth (the company's EPS growth rate in 24 and 25 was significantly higher than that of comparable companies), the company was given a price-earnings ratio of 23 times in 2024, maintained a target stock price of 49.91 yuan, and maintained a “strong push” rating.
Risk warning: downstream demand falls short of expectations, production expansion progress falls short of expectations, profitability falls short of expectations