Key points of investment
The product production capacity has a long-term layout, and epitaxial wafers+chips create a technological moat: Jucan Optoelectronics is a key enterprise in the manufacture of LED upstream epitaxial wafers and chips. Its main business revenue has continued to grow over the past few years, from 1,143 billion yuan in 2019 to 2,029 billion yuan in 2022. With the exception of 2022, the net profit returned to the mother was profitable. The company's gross margin has remained at around 11% for a long time. Net interest rate fluctuates with net profit fluctuations, but short-term fluctuations do not change the long-term development trend. In the first two quarters of 2023, the company's main business revenue and net profit to parent were 1,199 million yuan and 225 million yuan respectively. Main business revenue increased 19.21% year on year, and net profit on return decreased year on year; gross margin and net profit margin increased 9.93% and 2.09% respectively.
The LED industry continues to pick up, and Mini/Micro LED has become a new focus: demand in the LED industry continues to pick up, and downstream companies are ending their inventory. With the liberalization of the epidemic policy, the recovery of offline tourism, retail, catering and other markets has led to a steady rise in demand in the general lighting market; the hosting of large-scale events such as the Hangzhou Asian Games has created possibilities for the demand in the downstream display market to increase. The LED industry is expected to break out of a downward cycle after two years of inventory removal. Mini LED is ripe for implementation, and prospects are promising when it is being released soon. Other innovative LED markets such as automotive lighting, plant lighting, and UV/IR LEDs all have considerable room for growth.
Pay attention to management, full production and sales promote steady growth in production capacity, cost control to reduce costs and increase efficiency: in 2018-2022, the company's capacity utilization rates were 95.16%, 97.02%, 97.50%, 98.72%, and 98.23%, respectively. The company has always been operating at full capacity; the production and sales rates are 87.43%, 102.49%, 102.36%, 99.15%, and 96.75%, respectively. The company has always been in a state of full production and sales. Production process management, fine management, and daily management improve enterprise operating efficiency, reduce costs and increase efficiency, and give Jucan an advantage in industry competition.
Profit prediction and investment rating: The company occupies an important market position in LED upstream epitaxial wafers and chip manufacturing. Forward-looking product layout and strict management procedures lay the foundation for growth, and future performance growth can be expected. We expect to achieve operating income of 2,396/30.15/3.364 billion yuan and net profit of 1.09/16/203 million yuan in 2023-2025. The corresponding P/E is 54.37/37.06/29.19 times, respectively. Covered for the first time, and given a “increase in holdings” rating.
Risk warning: The recovery of the traditional LED market falls short of expectations; the penetration of the emerging LED market falls short of expectations; there is a risk of changes in customer demand.