Hongfa(SH:600885)2025-08-05 03:20Summary of Hongfa Technology (600885.SS) Conference Call Company Overview - Company: Hongfa Technology (600885.SS) - Industry: Relay and electrical components manufacturing Key Financial Results - 2Q25 Financial Performance: - Revenue: Rmb4,364 million, +16% YoY, +10% QoQ [1] - Gross Profit: Rmb1,513 million, +16% YoY, +12% QoQ [1] - Operating Profit: Rmb798 million, +18% YoY, +32% QoQ [1] - Net Profit: Rmb553 million, +13% YoY, +35% QoQ [1] - Gross Profit Margin (GPM): 34.7%, flat YoY, +1pp QoQ [1] Segment Performance - General Relay (Home Appliance): Rmb864 million in 2Q25, +0% YoY [5] - General Relay (Solar Inverters): Rmb397 million in 2Q25, +60% YoY due to demand in China [5] - Auto Relay: Rmb607 million in 2Q25, +16% YoY [5] - HVDC Relay: Rmb1,348 million in 2Q25, +54% YoY, gaining market share in Europe [5] - Industrial Control Relay: Rmb312 million in 2Q25, +44% YoY, recovering due to restocking cycle in Europe [5] - Power Relay: Rmb568 million in 2Q25, -10% YoY, affected by North American demand [11] Market Outlook - Demand Stabilization: Management expects demand to stabilize in 2H25E, overcoming tariff policy uncertainties [1] - European Demand Recovery: Anticipated recovery in European demand for industrial control relays [1] - China and India Contribution: Incremental contributions expected from China and India markets for power relays [1] - Indirect Data Center Applications: Expected revenue of Rmb700-800 million in 2024, with 20-30% YoY growth [1] Growth Projections - 2025E Growth Forecast: Projected 13% YoY revenue growth and 14% YoY net profit growth [1] - GPM Improvement: Expected GPM to improve to 37.7% in 2H25E [9] Capacity Expansion - Germany Factory: Began production in April 2025, focusing on HVDC products for European customers [8] - Indonesia Facility: Phase I on track for commercial operation by June 2026E, aiming for localized production [8] Risks and Valuation - Market Share: Hongfa holds a 24% global market share in relays as of 2024, with potential for further gains [13] - Valuation: Target price set at Rmb29.71 based on a 2026E P/E of 20x, with a current price of Rmb23.61, indicating a 25.9% upside [16] - Downside Risks: Include weaker-than-expected smart meter revenue and rising raw material costs [14] Conclusion - Investment Rating: The company remains rated as a Buy, with a solid setup for continued growth into 2H25E [1][13]