Hongfa(SH:600885) HTSC·2025-11-06 07:38Investment Rating - The report maintains a "Buy" rating for the company with a target price of RMB 44.68 [7]. Core Insights - The company's relay business benefits from sustained growth in downstream demand, leading to improved capacity utilization and stable gross margins [2][3]. - Modular products are accelerating in the new energy vehicle sector, contributing to market expansion for new product categories [2][3]. - The company's data center product layout is expected to benefit from the trend towards high-voltage direct current, resulting in simultaneous growth in volume and price [2][3]. Summary by Sections Relay Business - Demand across various sectors such as automotive, new energy, home appliances, industrial, and power has shown growth this year, with automotive and new energy sectors experiencing faster growth [3]. - The company is consolidating its advantages in high-voltage direct current relays while further increasing market share [3]. - The new energy sector is benefiting from strong downstream demand in photovoltaics and energy storage [3]. - The power sector saw a year-on-year growth rebound in Q3, attributed to a lower base from the previous year and increasing demand for meter relays in emerging overseas markets [3]. Modular Products - The company is transitioning from single components to modular solutions, enhancing the overall value it can provide [3]. - New modular products include high-voltage control boxes, industrial modules, body control boxes, and electronic pumps, with high-voltage control boxes gradually increasing in volume among major automotive clients [3]. - As new projects ramp up, the company expects to expand scale and improve profitability, driving performance growth [3]. New Product Categories - The company is actively developing new product categories such as film capacitors, connectors, current sensors, and fuses [3]. - It promotes new products based on product strength and brand power in advantageous downstream sectors like automotive [3]. - Modular products are expected to drive synergistic applications for new product categories [3]. Data Center - The company has a rich product reserve for data centers, including relays, medium and low-voltage equipment, connectors, and current sensors, applicable in energy storage, distribution, and power supply scenarios [4]. - With the increase in data center power and the shift towards high-voltage direct current supply systems, the demand and unit value of relays are expected to rise, positioning the company to benefit significantly [4]. Overseas Capacity - The company is steadily advancing the construction of its factory in Indonesia, with the first phase expected to be operational next year [4]. - The German factory is currently in small-batch production, and as customer projects progress, the company plans to gradually increase capacity to meet demand [4]. - The ongoing improvement of overseas capacity is viewed positively for accelerating market expansion [4]. Profit Forecast and Valuation - The company’s net profit attributable to the parent company is projected to be RMB 1.893 billion, RMB 2.195 billion, and RMB 2.590 billion for 2025, 2026, and 2027 respectively, representing a three-year compound growth rate of 16.66% [5]. - The estimated EPS for the same years is RMB 1.30, RMB 1.50, and RMB 1.77 [5]. - The average PE ratio for comparable companies in 2026 is 27.82 times, while the company’s target PE is set at 29.7 times, leading to a target price of RMB 44.68 [5].