Key points of investment

High-quality oil and gas equipment enterprises transformed into new energy equipment. Net profit CAGR 29.49% in 2017-2022. The company is a high-quality domestic oil and gas equipment enterprise. In 2022, it entered the lithium battery equipment industry through the acquisition of Hongtian Technology. Currently, the company's main business is oil and gas drilling equipment manufacturing, high-end copper foil equipment and ultra-precision vacuum coating equipment manufacturing. The first two accounts for 57% and 27% of revenue in 2022, respectively, and ultra-precision vacuum coating equipment has yet to generate revenue in 2022. The company's revenue in 2022 was 2.90 billion yuan, up 86% year on year, and CAGR 21.4%; net profit due to mother in 2022 was 106 million yuan, up 399% year on year, up 399% year on year, and 29.5% CAGR in 2017-2022; in 2022, the company's gross sales margin was 21.05%, and net sales margin was 7.67%.

Increased terminal demand+domestic substitution, the domestic electrolytic copper foil equipment industry ushered in a period of rapid development 1) Increased downstream demand: The two main application areas of electrolytic copper foil are copper foil for electronic circuits and copper foil for lithium batteries. The boom in the PCB industry and lithium battery industry directly affects the demand for electrolytic copper foil equipment. According to Prismark data, the global PCB output value is expected to be about 4.65% CAGR in 2021-2026; according to GGII data, global lithium battery shipments CAGR will be about 38.34% in 2021-2025, and the lithium battery industry has become the main source of increase in electrolytic copper foil equipment.

2) Domestic substitution: Currently, domestic electrolytic copper foil core production equipment relies on imports, and the localization rate of core production equipment such as cathode rollers is low. The core technology of Hongtian Technology's electrolytic copper foil equipment comes from Japan. Under continuous technical research, the technical indicators of products such as cathode rollers, copper melting tanks, foaming machines, and titanium anodes are internationally leading, and the electrolytic copper foil equipment is expected to be replaced by domestic production.

The industrialization process of composite collectors is accelerating. It is estimated that the market size of composite collectors will be 151 billion yuan in 2023. Composite collectors have the advantages of high safety, high specific capacity, high cycle life, and low cost, which is the general trend.

Composite copper foil is in the technical verification period, and composite aluminum foil is in the mass production introduction period. We expect the global composite fluid collector equipment market to be 151 billion yuan in 2025, with a CAGR of about 702% in 2023-2025. Hongtian Technology's all-in-one vacuum magnetron sputtering and evaporation machine has the advantages of simple and environmentally friendly process, high base film quality, high production efficiency, low production cost, and optional customization. Currently, the company's composite fluid collector equipment has signed an order of over 250 million yuan. As the industrialization process of composite fluid collectors continues to accelerate in the future and the penetration rate continues to increase, one-step dry processing equipment is expected to become the mainstream equipment for composite fluid collector production. As a leading equipment manufacturer with a one-step approach, the company is expected to benefit from the rapid development of the industry.

Profit forecasting and valuation

In 2023-2025, the company is expected to achieve net profit of 200 million yuan, 2.33 million yuan, and 338 million yuan, respectively, with year-on-year increases of 88%, 17%, and 45%, CAGR = 30%, corresponding PE of 26, 22, and 15X. First coverage, giving a “buy” rating.

Risk warning

1) Demand in the PCB and lithium battery industry falls short of expectations; 2) The industrialization of composite fluid collectors falls short of expectations; 3) the risk of deviations in industry spatial estimation.