Matters:
Jingyan Technology has been deeply involved in the MIM industry for a long time. With its industry-leading technical level, stable product quality, professional service team and quick response ability, it has accumulated a large number of well-known brand customer resources in the fields of consumer electronics, automobiles, etc. Looking ahead, we are optimistic that emerging consumer electronics markets such as 5G phones, folding screen phones, and wearable devices will flourish, driving the company's demand for MIM products to continue to grow.
We expect the company's operating revenue to increase 35.0%/30.9%/26.6% year-on-year to 21.11/27.63/3497 billion yuan in 21/22/23, and net profit of the mother increased 8.7%/43.6%/34.6% year on year to 1.54/221/298 billion yuan. The current stock price corresponding to PE was 34.1/23.7/17.6 times, respectively. We believe that the company's valuation still has room to rise compared to the industry average, covering the “buy” rating for the first time.
Commentary:
Demand for MIM products is strong, and 1H21's revenue increased 50.29% year-on-year to 913 million yuan. Established in 2004, Jingyan Technology is a professional manufacturer and solution provider of metal powder injection molding (MIM) products. The company mainly provides a large number of customized MIM core component products with high complexity, high accuracy, high strength, and beautiful appearance for consumer electronics fields such as smartphones and wearable devices, and the automotive sector. The products cover such as camera holders, connector interfaces, decorative rings, hinges, etc. in smartphones, and watch cases, watch structures, headphone structures, etc. in wearable devices. In addition, the company also provides shaft devices, smart TV camera lifting mechanisms, and precision transmission mechanism products such as microcloud platforms for smart phones, smart headphones, smart home appliances, etc., and heat pipes, VC, etc. for cooling fields such as consumer electronics and communications. The company's customers are of high quality, and the products are ultimately used by well-known domestic and foreign consumer electronics brands such as Apple, OPPO, vivo, Samsung, Xiaomi, Fitbit, Google, Hisense, etc., and famous domestic and foreign automobile brands and auto parts suppliers such as Great Wall, Honda, SAIC GM, Schaeffler, Cummins, etc.
The company's revenue has grown rapidly since 2013, and net profit declined year-on-year in 2020 due to increased competition in some traditional MIM businesses. The company's revenue increased from 95 million yuan in 2013 to 1,564 million yuan in 2020. The corresponding CAGR was 49.31%, achieving rapid growth. In 2020, under adverse effects such as the slowdown in demand from downstream end customers caused by the COVID-19 pandemic, the company vigorously promoted the transition of new projects to mass production in 2H20, which ensured the steady growth of the company's MIM business. However, in some traditional MIM businesses, the capabilities of market competitors gradually came closer, leading to a year-on-year decline in the company's gross margin level in 2020, and the net profit of returning mother in 2020 fell 17.17% year-on-year to 142 million yuan.
1H21's revenue increased 50.29% year on year to 913 million yuan, but Guimu's net profit fell 55.43% year on year to 16.2267 million yuan; 2Q21 company revenue increased 44.88% year on year to 496 million yuan, but Guimu's net profit fell 131.19% year on year to -6.244,900 yuan. 1H21's revenue increased rapidly year-on-year, mainly due to increased demand from consumer electronics brand customers for MIM products such as mobile camera holders, mobile phone hinges, and wearable device structural parts; the company's net profit declined mainly due to: 1) Smartphone chip supply shortages, demand from some customers slowed or delayed, the company's production capacity was underutilized, and fixed costs could not be diluted; 2) the company's export business was mainly settled in US dollars. The company's export business was mainly settled in US dollars, and the 1H21 RMB exchange rate appreciated, which affected sales revenue, which in turn reduced gross margin levels. We believe that with the further increase in MIM demand for new businesses such as 5G phones, folding screen phones, and wearable devices, the company's revenue and net profit are expected to bottom out.
The company's revenue mainly comes from consumer electronics businesses such as smartphones and wearable devices. In 2016-2019, as the main customer switched from Fitbit to Apple, the company's share of wearable device revenue fell from 56.94% to 7.99%, and the share of smartphone revenue increased from 32.05% to 82.29%. Since 2020, along with the rapid rise of wearable devices such as smart watches and TWS headsets, the company's share of wearable device revenue has rebounded from 7.99% in 2019 to 22.27% of 1H21, and the share of smartphone revenue has declined from 82.29% in 2019 to 62.75% of 1H21. The gross margins of 1H21's smartphone, wearable device, processing services and other businesses were 24.50%, 10.42%, and 11.27% respectively. The gross margins of the smartphone category were higher than other main businesses.
The company's gross margin level has declined since 2015, and the expense ratio level was relatively stable during the period. Against the backdrop of increasingly fierce competition in some traditional MIM businesses, the company's comprehensive gross margin level fell from 52.37% in 2015 to 29.76% in 2020; 1H21's gross margin fell further to 20.76% under the influence of a decline in end customer demand due to a shortage of upstream smartphone chip supply and price cuts for some of the company's old consumer electronics project products. The company's cost rate level was relatively stable. The cost rate for the 1H21 period decreased by 0.62 pct to 21.26% year on year. Among them, the sales expenses rate fell 1.00pct to 2.28% year on year, the management expense ratio decreased 1.09pct to 8.18% year on year, the R&D expense ratio decreased 1.11pct to 9.24% year on year, and the financial expense ratio increased 2.58pct to 1.56% year on year.
Emerging consumer electronics markets such as 5G, folding screens, and wearables are on the rise. As a MIM leader, the company is expected to fully benefit from the rapid development of 5G phones, folding screen phones, and wearable devices, which will drive the company's demand for MIM products.
5G mobile phones: 5G technology has ushered in the “Internet of Everything” era of high-speed Internet of Things, triggering profound changes in production lifestyles and injecting new impetus into the development of the consumer electronics and smartphone industries. According to IDC data, in 2020, global 5G mobile phones were shipped 255 million units, with a penetration rate of 19.92%; 1H21 global 5G mobile phones shipped 244 million units, with a penetration rate of 37.02%; IDC expects global 5G mobile phone shipments to reach 1,134 million units in 2025, with a penetration rate of 73.20%. According to IDC data, China shipped 167 million 5G phones in 2020, with a penetration rate of 51.43%; 1H21 China shipped 130 million 5G phones, with a penetration rate of 78.84%; IDC expects China's 5G mobile phone shipments to reach 359 million units in 2025, with a penetration rate of 99.57%.
We believe that the complexity and integration of the internal design of 5G phones has further increased, and the internal structure continues to evolve towards the trend of refinement and miniaturization, while the MIM process has obvious advantages in manufacturing precision structural components with high complexity, high precision, high strength, and beautiful appearance, and is expected to achieve a gradual increase in market size as the penetration rate of 5G phones increases.
Folding screen phones: Folding screens are gradually emerging as an important innovation direction for smartphones. In 2021, major domestic and foreign mobile phone brands have entered the folding screen mobile phone market. Brands such as Samsung, Huawei, and Xiaomi have all launched their own next-generation folding screen phones. Brands such as Honor, vivo, and OPPO also have plans to launch folding screen phones. Folding screen phones have also brought more development opportunities and development space to the MIM market. According to IDC data, global folding screen phones shipped 1,9472 million units in 2020; 2Q21 global folding screen phones shipped 786,400 units, up 68.95% month-on-month and 82.96% year-on-year. Shipments reached record quarterly highs; among them, 2Q21 Huawei, Samsung, Xiaomi, and Lenovo ranked first to fourth with a shipment volume market share of 39.7%, 29.4%, 22.0%, and 7.0% respectively.
Wearables: Global wearable device shipments are showing a rapid growth trend. According to IDC data, global wearable device shipments increased from 1.91 million units in 2012 to 446 million units in 2020, with a corresponding CAGR of 97.71%; IDC expects global wearable device shipments to reach 763 million units in 2025, with a corresponding CAGR of 11.34%. According to IDC data, in the global wearable device shipment structure in 2020, the number of smart headphones shipped 268 million units, an increase of 49.43% over the previous year, accounting for 60.0%; the number of smart bracelets shipped was 69.938 million units, down 0.79% year on year, accounting for 15.7%; smart watch shipments were 106 million units, up 14.88% year on year, accounting for 23.9%. We believe that with the development of 5G, AI, VR and other technologies, wearable device application scenarios will gradually increase, and shipments are expected to maintain a high growth rate, driving growth in MIM demand.
Investment advice: First coverage to give a “buy” rating
We expect the company's revenue to increase 35.0%/30.9%/26.6% year-on-year to 21.11/27.63/3497 billion yuan in 21/22/23. The core data assumes the following:
Smartphone category: We expect the company's smartphone business revenue to increase 32.4%/27.8%/24.7% year-on-year in 21/22/23, and we expect the gross profit margin of the company's smartphone business to be 29.4%/29.9%/30.5% in 21/22/23.
Wearable device category: We expect the company's wearable device business revenue to increase 50.8%/41.5%/33.6% year-on-year in 21/22/23, and we expect the gross profit margin of the company's wearable device business to be 11.6%/11.8%/12.0% in 21/22/23.
Processing services and others: We expect the company's processing services and other business revenue to increase 30.7%/33.8%/25.4% year-on-year in 21/22/23. We expect the gross profit margin of the company's processing services and other businesses to be 29.1%/29.5%/30.1% in 21/22/23.
Risk warning
1. The macroeconomic downturn caused consumer electronics demand to fall short of expectations; 1. The increase in 5G mobile phone penetration fell short of expectations;
2. Shipments of folding screen phones fell short of expectations;
3. The risk of increased competition in the MIM industry;