HGTECH(000988) 国泰君安·2024-06-13 23:01Investment Rating - First coverage with a target price of 42.0 yuan, rated as "Overweight" [3] - The target price is based on a 2024 PE of 30x, with a predicted net profit of 1.419 billion yuan for 2024 [3] Core Views - The company is a leading domestic optoelectronic enterprise with strong competitive advantages in three major business segments: intelligent manufacturing, sensing, and connectivity [3] - The connectivity business is expected to exceed market expectations due to the rapid growth in demand for 400G/800G modules driven by AI infrastructure investments [3] - The company is well-positioned to benefit from the AI-driven demand for high-speed optical modules, with significant market share among major domestic equipment manufacturers and internet terminal customers [3] Business Segments Intelligent Manufacturing - The company is one of the largest laser equipment manufacturers in China, with continuous innovation in high-end products and integrated production lines [3] - Applications include 3C electronics, automotive electronics, new energy, PCB, semiconductor panels, and consumer goods [10] Sensing Business - The company has globally leading PTC and NTC sensor technologies, focusing on new energy and smart connected vehicles [3] - The business has seen rapid growth in recent years, with significant expansion in the automotive sector [10] Connectivity Business - The connectivity business is expected to benefit from the AI-driven demand for 400G/800G optical modules, with domestic demand potentially underestimated [3] - The company has prepared for capacity expansion and is expected to achieve high growth in this segment [3] Financial Projections - Revenue is projected to grow from 12.134 billion yuan in 2024 to 18.993 billion yuan in 2026, with a CAGR of 18.9% [4] - Net profit attributable to the parent company is expected to grow from 1.419 billion yuan in 2024 to 2.437 billion yuan in 2026, with a CAGR of 31% [4] - EPS is projected to increase from 1.41 yuan in 2024 to 2.42 yuan in 2026 [4] Valuation Analysis - The company is valued using a PE multiple of 30x for 2024, based on comparable companies in the industry [13] - The target price of 42.0 yuan is derived from the PE valuation, with a reasonable valuation range of 42.0-51.0 yuan [16] Industry Trends - The AI-driven demand for high-speed optical modules is expected to drive significant growth in the connectivity business, with domestic internet giants like Huawei, Tencent, and Alibaba investing heavily in AI infrastructure [3] - The market for 400G/800G optical modules is expected to grow rapidly, with the company well-positioned to capture this demand [3] Company Overview - The company was founded in 1999 as a spin-off from Huazhong University of Science and Technology, focusing on laser technology applications [17] - It has since expanded into three major business segments: connectivity, intelligent manufacturing, and sensing [17] - The company underwent a restructuring in 2021, with the actual controller changing from the university to the Wuhan State-owned Assets Supervision and Administration Commission [17] Financial Performance - Revenue has grown from 6.137 billion yuan in 2020 to 10.208 billion yuan in 2023, with a slight decline in 2023 due to reduced demand for 5G small base stations [19] - Net profit has steadily increased, driven by cost reductions and product upgrades in the intelligent manufacturing, sensing, and connectivity businesses [19] R&D and Innovation - The company has significantly increased its R&D investment, with the establishment of a central research institute and a focus on high-end products [21] - R&D expenses are expected to decrease as a percentage of revenue due to the growth in high-speed optical module sales driven by AI [21] Management and Incentives - The company has implemented a robust incentive system for its management team, linking compensation to performance targets [26] - The management team has the opportunity to earn additional rewards based on exceeding profit growth targets [27]