Key points of investment:
A leading enterprise in the domestic laser welding industry. The company was founded in 2005. In June 2020, the company was listed on the Science and Technology Innovation Board of the Shanghai Stock Exchange and became the “first stock of laser welding on the Science and Technology Innovation Board”. The company's products include lasers, workbenches, and complete welding automation equipment; the products are widely used in power batteries, automobile manufacturing, consumer electronics and other fields. In recent years, benefiting from the downstream demand for power batteries, the company's revenue and profit continued to grow. The company's revenue CAGR was 29.05% in 2018-2023, and the CAGR of the company's net profit to mother was 27.98% in 2018-2023.
Lithium battery business: Overseas markets and new technologies are changing or increasing, and the company has a forward-looking layout. Laser welding has the advantages of high material compatibility, high efficiency and precision, automated integration, etc., and is used in battery and module welding production, and is standard equipment for lithium production lines. The growth rate of fixed asset investment by domestic battery companies is slowing down, putting some market pressure on equipment companies; however, domestic battery companies going overseas and equipment purchases by overseas local companies are driving new demand; in addition, new technologies such as 4680 and solid-state batteries in the battery sector continue to emerge, bringing new opportunities to the equipment industry. The company reserves new battery technology in advance and actively lays out overseas markets, and may benefit from overseas production expansion and new technology iteration opportunities.
3C business: Product iterations drive laser welding requirements, and the company receives batch orders from customers. The 3C industry requires higher processing accuracy, and laser welding will further replace traditional welding; the European Union's “New Battery Law” accelerates the application process of steel-shell batteries and drives laser welding demand; the company has been in the consumer electronics field for many years, targeting micron-level high-precision laser welding projects proposed by top international customers. After more than two years of R&D and trial production and customer recognition, it has obtained batch orders, increasing the share of the consumer electronics high gross margin business or driving the company's profit structure improvement.
Laser welding: The company extends the value chain around laser welding and actively lays out new tracks. The penetration rate of laser welding in China is low. The market space for laser welding equipment is expected to be about 20 billion in 2025. The company is deeply involved in laser welding tracks, with forward-looking layout and promising future prospects. Furthermore, the company has established a subsidiary to actively extend the advantages of laser processes to high-end manufacturing fields such as semiconductors and photovoltaics, cultivating new business growth points for the company's medium- to long-term development.
Profit forecast and valuation: Considering that the downstream expansion of the power battery business is under pressure, we lowered our 24-26 profit forecast. Net profit for 24-26 is estimated to be $322 million, $460 million, and $628 million respectively (previously estimated at $380 million, $512 million, and $645 million). The company's current stock price (2024/6/6) corresponds to 2024-2026 PE of 14, 10, and 7X, respectively. The average PE value of comparable companies in 2024-2026 is 21, 15, and 13X. The company's valuation level is lower than the industry average. Considering the company's advance layout in the 3C consumer electronics, automotive, general and other fields, it will contribute to new growth in the future. Therefore, the buy rating is maintained.
Risk warning: the risk that downstream power battery production expansion or the bidding process falls short of expectations; the risk that the company's market share or gross margin will decline as industry costs increase and market competition intensifies; the risk that the promotion of new products falls short of expectations, etc.