Higashiyama Precision adheres to a “two-wheel drive” development strategy focusing on consumer electronics and new energy businesses, and its core business continues to grow steadily. In the consumer electronics business field, the company closely follows the pace of strategic innovation of leading customers, adheres to a global business layout, and increases the application of the company's electronic circuit products in emerging fields such as AI terminals by improving technical capabilities. In the field of new energy vehicles, the company is actively promoting the construction of production bases at home and abroad, and has completed acquisitions of Suzhou Jingduan and Aranda plants in the US, continuing to expand its product line and strive to provide customers with one-stop products and services. We believe that in the future, with the significant increase in product volume and stand-alone value of the two major customers, Dongshan will usher in great flexibility as a core leader.
Consumer electronics continues to achieve steady growth, and the advantages of the duopoly competitive pattern are highlighted. AI terminals drive the increase in the value of standalone mobile phones & XR bring in new volume. Almost all components on a smartphone require an FPC to connect it to the motherboard, and FPC usage has been gradually increasing due to internal space requirements. Higashiyama's consumer electronics business has maintained high revenue and profit levels, and continues to grow. We expect that the next generation iPhone FPC usage will continue to increase, while the company's subsequent module version numbers will continue to increase, driving the value of Higashiyama FPC to increase at the same time. With the introduction of new products such as MR, FPC usage in the wearable sector has further increased. We expect the company to reach a revenue target of 4 billion-5 billion US dollars for major customers in the future.
Higashiyama is deeply involved in precision manufacturing to create a second growth curve. The company mainly provides customers with products such as precision metal structural parts, electronic circuits, and touch display modules for new energy vehicles, energy storage, communication equipment, etc. The booming NEV industry is injecting new vitality into its traditional precision manufacturing business. The penetration of new energy vehicles is accelerating, and their PCB usage is 5-8 times that of traditional cars. Higashiyama fully embraces major US customers. It is one of the few upstream suppliers that can provide various products and comprehensive solutions such as PCBs (including FPCs), vehicle screens, and functional structural components for NEV customers. In the future, the advantages of multiple industrial chains and integration will further deepen the stickiness of companies and customers.
Focus on core tracks and products, and continue to strengthen business cooperation with leading customers in the industry. The company's Q1 R&D expenses increased by about 31% year-on-year to 0.253 billion yuan. The company accelerated the expansion and layout of the NEV product line, investment in new bases, certification of new customers, mass production of new products, etc. At the same time, the company continuously strengthened internal integration and collaboration through internal optimization of resource allocation to actively meet customer needs. In order to respond to customer needs, the company accelerated the layout of overseas production bases and built new plants in Mexico, Thailand and other countries, and the company's international operation capacity was further enhanced.
Profit forecast and investment advice: We expect the company to achieve operating income of 39.2/47.2/55.3 billion yuan in 2024/2025/2026, with a year-on-year increase of 16.6%/20.3%/17.1%, and net profit to mother of 2.2/3.8/4.8 billion yuan, an increase of 14.2%/69.4%/26.4% year-on-year. The current stock price corresponds to 2024/2025/2026 PE is 20/12/9X, respectively, maintaining a “highly recommended” rating.
Risk warning: Consumer electronics expansion falls short of expectations; expansion of new energy production falls short of expectations; industry competition intensifies.