The leader of electronic welding materials and the rapid growth of new energy applications

Investment logic deepens the microelectronic welding materials and serves high-quality customers in many fields. 1) The company is deeply involved in the field of microelectronic welding materials, with a wide range of product applications, mainly serving the head customers in the field of segmentation, including Huawei and ZTE in the field of communication, Jingke Technology and Jingao Technology in the field of photovoltaic, and BYD, Great Wall and other well-known brands in the field of new energy vehicles; 2) The production and sales volume of solder paste/shipment volume of the company ranked first in China for three consecutive years from 19 to 21, and the production and sales volume of flux/shipment volume ranked second in China, leading the industry; 3) The company's revenue in the first three quarters of 22 years was 833 million yuan, an increase of 43%; The net profit attributable to the parent company was 63 million yuan, with an increase of 1%. It continued to benefit from the demand for domestic substitution in the downstream with high visibility. The growth rate of profit was lower than the growth rate of revenue, mainly due to the increase in raw material prices and costs.

The import substitution space is large and the substitution process is accelerated. 1) According to the data of China Electronic Materials Industry Association, the CAGR of China's microelectronic welding material production in 2015-2019 was 4.04%, and the overall market size of China in 2020 was 30 billion yuan, of which the solder paste market size reached 4 billion yuan; 2) About 50% of the domestic solder paste market is occupied by well-known foreign enterprises. Under the friction between China and the United States and the support of national policies, domestic enterprises represented by Huawei, ZTE and Hikvision have turned to domestic suppliers of microelectronic welding materials, accelerating the import substitution of electronic welding products, and the company will continue to benefit as the domestic leading manufacturer of the subdivision track.

We are optimistic about the high-visibility opportunities in the field of downstream photovoltaic and new energy vehicles. 1) The scale of new PV installed capacity will continue to grow. According to the prediction of the National Institute of Finance and Economics, the global/China new PV installed capacity will reach 350/140GW in 2023, with CAGR of 28%/31% in four years. 2) Electrification will drive the demand for microelectronic welding materials. According to the Global/China tram penetration rate of 12%/23% in 2022 of the National Institute of Finance and Economics, it is expected to increase to 29%/47% in 2025. 3) In 2021, the sales volume of customers in the PV/5G/new energy vehicle industry increased by 39%/64%/729%, and the performance of key areas increased rapidly. 4) Consumer/communication/security is still an important downstream market. The steady growth of the industry and the expansion of new customers of the company will bring incremental space.

The IPO price of the company in September was 47.75 yuan/share, and the net amount of funds actually raised was 624.3 million yuan, which was used for the expansion of the capacity of microelectronic welding materials, the technical transformation of production lines, and the construction of research and development centers.

The investment proposal predicts that the company will achieve net profit attributable to the parent company of 91 million yuan, 135 million yuan and 190 million yuan respectively from 2022 to 2024,+10.75%,+48.17% and+40.54% year on year, giving the company a PE valuation of 35 times in 2023, a target market value of 4.728 billion yuan, and a corresponding target price of 80.62 yuan/share. The first coverage will be given a buy rating.

Risk tips include the risk of new product research and development, the risk of raw material price fluctuation, the risk of lower than expected customer expansion in downstream areas, and the risk of lifting the ban on restricted shares.