Report Guide

The main business performance fell short of expectations due to the rise in raw material prices/increased competition/the pandemic. Dongguan Guixiang expanded production by 80%, achieved high performance flexibility in energy storage and temperature control, and maintained “buying”.

Key points of investment

Results in '21 fell short of expectations and 22Q1 met expectations

In 2021, the company achieved revenue of 1.68 billion yuan, a 36.7% year-on-year increase, and net profit of 64.55 million yuan decreased 20.3% year-on-year. This was mainly due to the amortization and accrued interest of the company's convertible bond interest adjustments of about 16.98 million yuan, an increase in R&D expenses of about 22.33 million yuan, and the impact of factors such as a sharp rise in raw material prices, increased market competition, and repeated epidemics on project development and costs exceeding expectations.

In January-January 2022, the company achieved revenue of 4.2 million yuan, a year-on-year increase of 47.4%, and a year-on-year increase of 80.3% in net profit of 8.29 million yuan.

Gross margin is under pressure due to upstream price increases, the pandemic, etc.

The gross margin of the company's products declined due to factors such as a sharp rise in raw material prices, increased market competition, and repeated epidemics on project development and costs. Among them, the gross margins of DC water-cooled products and water-cooled products for new energy power generation were 33.94% and 11.37%, down 3.10 pct and 2.59 pct, respectively; the gross profit margins of power battery thermal management products and new energy vehicle electronics manufacturing products were 20.90% and 27.69%, down 9.99 pct and 5.62 pct, respectively.

Expenses are effectively controlled. In 2021, the company's sales, management, and financial expenses rate was ↓ 3.35 pct, ↓ 0.67 pct, ↑ 0.93 pct, total ↓ 3.09 pct. The total sales, management, and financial expenses rate for the first quarter of 2022 was even higher than ↓ 2.37 pct.

Silicon Xiang expands production by 80%, and growth expectations are optimistic

Dongguan Guixiang (51% holding) achieved rapid growth. In 2021, realized revenue of 834 million yuan increased 147% year on year, and realized net profit of 74.23 million yuan (9.44 million yuan has been calculated for excess performance rewards) increased 67% year on year. 22Q1 and 21Q1 minority shareholders' equity was 15.61 million yuan and 8.7 million yuan respectively. 2022Q1 increased 79% year-on-year. Minority shareholders' equity was dominated by Dongguan Guixiang. The net profit of Dongguan Guixiang was over 30 million yuan in the frame of 2022Q1.

The company is actively expanding its production capacity. The company's production capacity for power battery thermal management products and electronic manufacturing products for new energy vehicles is 75 million pieces and 6.5 million pieces respectively. The capacity utilization rate in 2021 is 94% and 96%. Currently, the production capacity under construction is 60 million pieces and 5 million pieces, respectively, with an expansion of 80% and 77% to support future development.

Dongguan Guixiang's customers include major mobile battery companies such as Ningde Times, BYD, China Innovation Aviation, and Guoxuan Hi-Tech. The company continues to upgrade products and expand customers, and its growth expectations are quite optimistic.

New business layouts such as energy storage, temperature control, and liquid cooling are flexible

The company continues to increase investment in R&D, saving energy storage and new fields such as ICT thermal management. In 2021, the number of R&D personnel was 422, up 48% year on year, R&D expenses of 79.15 million yuan increased 39.3% year on year, and R&D expenses of 38.67 million yuan increased 38.7% year on year in the first quarter of 2022.

In the field of energy storage, the company currently has technical reserves and solutions based on lithium battery single-cabinet energy storage liquid cooling products, large-scale energy storage power plant liquid cooling systems, and prefabricated energy storage liquid cooling products. In August 2021, the company revealed that it had signed an order of about 11 million yuan. The explosive development of the energy storage industry is expected to drive the company's performance flexibility.

In addition, the company lays out new businesses in the fields of thermal management for new energy vehicles (liquid cooling plates, battery pack thermal management units), ICT thermal management (cold plate, immersion liquid-cooled server thermal management solutions, container liquid-cooled data center solutions), and nuclear medical chillers, etc., and lays out new development opportunities.

Profit forecasting and valuation

Affected adversely by factors such as raw material price increases and the epidemic, we lowered our profit forecast. We expect net profit to be 1.10/171/224 million yuan and PE 21/14/10 times in 2022-24. Based on the high growth of Silicon Xiang and the energy storage business, as well as the increase in demand in the UHV and offshore wind power sectors, we maintain the “buy” rating.

Risk warning: Increased competition has led to a decrease in product gross margin; customer expansion and order acquisition of pure water cooling equipment fell short of expectations; new business development such as energy storage and liquid cooling fell short of expectations, etc.