Early vacuum e-device manufacturer with diverse downstream applications Founded in 2000,GuoLi is an R&D-driven manufacturer of electronic vacuum devices. The company supplies four major categories of electronic components: relays, circuit switches,capacitors and tubes. Its seven major product series include ceramic high-voltage DC contactors, ceramic high-voltage vacuum relays and vacuum AC contactors. They are widely used in new energy vehicles (NEV) and charging facilities, as well as in the aerospace and military industries, semiconductor manufacturing equipment, photovoltaic wind energy and energy storage, traditional energy, security inspection,irradiation and other downstream applications. Core technological know-how with a collection of patents As of September 2021, the company holds 31 invention patents and 71 utility model patents, some of which are at advanced levels. Beneficiary of NEV, semiconductor, aerospace, military demand boom markets New energy vehicles:Ceramic high-voltage DC contactors are core components in battery and circuit systems in NEV and charging facilities.GuoLi was among the earliest manufacturers in China to realize the industrialization of ceramic high-voltage DC contactors. Based on the company’s listing prospectus, it is a major player with 10.28-19.58% market shares in domestic NEV and charging facilities’ HVDC contactors in 2020. Customers include ContemporaryAmperex Technology, Shenzhen Inovance Technology and GIGAVAC. Benefiting from an NEV market boom and related markets, we expectGuoLi’s ceramic HVDC contactors, contact point modules and other products to increase in market share to promote revenue growth. Semiconductor equipment: Ceramic vacuum capacitors and ceramic high-voltage vacuum relays produced by the company are key electronic components of semiconductor manufacturing equipment, including etchers, film deposition equipment such as PECVD, and cleaning equipment. In the past, the proportion of electronic vacuum devices in semiconductor equipment was not high because of low penetration, small market upside potential and few suppliers. The company's vacuum capacitor products perform as well as those made by main competitors abroad, in our view, plus having a low production cost. Benefiting from a global chip shortage, chip capacity expansion and domestic semiconductor equipment substitution, we believe that domestic vacuum electronic device manufacturers of equivalent quality to foreign manufacturers will enjoy new market opportunities. Aerospace and military: Ceramic high-voltage vacuum relays and ceramic vacuum capacitors produced by the company are used in aerospace and aviation power control systems,aerospace and military communication systems, and are core components in power control and communication systems.GuoLi entered the military high voltage vacuum relay market early. Its products are recognized by customers in the aerospace and military fields, and in terms of market share, has become one of the main suppliers to downstream customers. Valuation and risks We expect revenue to reach RMB512m/683m/932m in 2021/22/23E and net profit to reach RMB66m/120m/180m. Relative to Wind consensus PEGs forHongfa Technology, Guoguang Electric, Guizhou Space Appliance, ShaanxiBaoguang Vacuum Electronic Apparatus and Unigroup Guoxin Microelectronics, we assign a PEG of 1.14x toGuoLi and derive a target market cap of RMB8.9bn, corresponding to our target price of RMB93.25.Risks include: intensifying trade friction; technological innovations falling below expectations; downstream expansion falling below expectations; intensifying competition; worsening C19 impacts; and short-term stock price fluctuations. * Note: The investment ratings given by TFI Asset Management Limited may have taken reference to the research report previously issued by other entities of the TF Group. For details, please contact us at research_tfi@tfisec.com. | 