\u3000\u3000 Ningbo Kangqiang Electronics Co.Ltd(002119) (002119)
Event: the company released the performance forecast on the evening of January 25. It is expected that the net profit attributable to the shareholders of the listed company will be 175-200 million yuan in 2021, with a year-on-year increase of 99.02% – 127.45%, and the net profit after non deduction in 2021 will be 160-185 million yuan, with a year-on-year increase of 111.50% – 144.54%.
The growth of parent company profit exceeds the market expectation, and the company’s high-quality continuous growth will continue. For example, according to the performance forecast center of about 188 million, the company’s Q4 achieved a profit of 64 million. This data has grown both year-on-year and month on month. If the data from the first quarter to the fourth quarter of 2021 are compared, they are 22.7 million, 48.3 million, 53.3 million and 64 million respectively. This data is in line with the predictions of our previous reports, achieving a sustained high growth year-on-year and strengthening quarter by quarter!
Previously, some investors who did not know the company and industry had some narrow and wrong judgments about Kangqiang. They believed that Kangqiang’s growth was just a simple price rise logic of packaging lead frame in short supply. With the alleviation of chip shortage, chip sealing and testing materials were no longer tight, and Kangqiang’s performance growth was only a cyclical flash in the pan from Q2 to Q3. However, we have always stressed that in the 84% growth of the company’s net profit after deducting non-profit in the first half of the year with the greatest impact of the price rise, excluding the rise in the price of raw materials, the real gain brought by the price rise is less than 15%. The real driving force for the company’s growth is the increase in the proportion of high-quality IDM customers and the smooth adjustment of high-profit products and structure, And high-order etching frame products.
The super shortage of Q4 packaging frame industry has passed, the channels are no longer as hard to find as in the first half of the year, and the channel price of standard parts has also dropped. However, Kangqiang has continued to grow month on month against this background, which means that the company has indeed adjusted the supply structure of downstream customers and products in the previous peak season, At the same time, high-level etching framework products continue to increase production capacity and sales contribution, which is a very healthy operation and growth model. It is believed that such steady growth will continue in 2022.
The restructuring of Yinyi, the largest shareholder, was finally implemented. According to several announcements of * ST Yinyi from November to December 2021, first of all, as of November 11, zihejinxin has completed the paid in capital contribution of RMB 3.215 billion, and all the restructuring investment funds have been in place. Secondly, on November 25, the board of directors and the board of supervisors of Yinyi had completed a thorough change of office, and all six non independent director candidates came from restructuring investors. After the 8th board of directors on December 14, all directors unanimously elected Mr. Ye Ji as the chairman of the 8th board of directors of the company. According to the restructuring investment agreement, Yinyi has timely started the conversion of capital reserve into shares in the restructuring plan, and has completed cash repayment to most creditors. The above behavior means that the actual controller of Yinyi, the largest shareholder who was not in harmony with Kangqiang’s management in the past, has changed from the Xiong family to zihejinxin. From the perspective of zihejinxin’s equity structure, its relationship with Kangqiang’s management will obviously be much more harmonious than the Xiong family. In the past, many investors were more concerned about Kangqiang’s lack of actual controllers and the disputes between the largest shareholder and the management. After the implementation of Yinyi restructuring, Kangqiang’s shareholder relations will be clearly improved, and there will be no burden on the promotion and development of some key matters of the management in the future.
The share increase of etching framework is still an important support for the growth of the company. In many past reports, we have always emphasized the breakthrough and rapid growth of the company in the field of etching framework. Through the prosperity of last year, the company has realized the rapid introduction and share increase of high-end etching framework to downstream customers, and completed the market entry that may take two or three years in the past. The trade war and the possibility of sudden supply interruption of Taiwanese and Japanese manufacturers during the tight supply in the first half of 2021 have made China’s downstream brands, chip and packaging manufacturers begin to pay attention to the cultivation importance of localization substitution. The global demand for etching framework is large, but the supply is only mastered by a few of the top six enterprises in the world. Kangqiang is an important breakthrough in China’s localization substitution in this field. Therefore, the etching framework is also the most important expansion direction of the company in the future. We are optimistic about the future expansion progress of Ningbo Kangqiang Electronics Co.Ltd(002119) in the direction of etching framework and the growth of its share in China’s packaging supply chain. Due to the high technical barriers, the profit margin of the etching framework is much higher than that of the traditional stamping framework, and the profit increment brought by it will also be multiple of the traditional products. The continuous growth of the etching framework will be the most important focus and support of Ningbo Kangqiang Electronics Co.Ltd(002119) in the next few years.
Profit forecast and rating: maintain the company’s buy rating. Ningbo Kangqiang Electronics Co.Ltd(002119) is a leader in China’s packaging lead frame industry, with a solid and steady style. After the breakthrough of etching frame around 2020, it will enter a very clear period of rapid growth in the last two or three years.
The unexpected growth of Q4 has clearly proved that the growth source of the company is not the cyclical price rise of the industry. It is optimistic about the localization substitution space of the company in China’s head chip and packaging enterprises, and under the background of the rapid growth of new energy vehicles, photovoltaic, energy storage and other applications, As the main physical packaging support of power device chip products is the use of lead packaging frame, the growth base of the downstream application of lead frame is completely different from the era of relying solely on household appliances and other products in the past. In fact, this understanding is very important, but many investors do not recognize this, which also brings very clear expectations for the company. We estimate that the company’s profits from 2021 to 2023 will be 191 million, 278 million and 384 million respectively. Recently, due to the irrational adjustment of the market, the company’s valuation has been adjusted to less than 20 times corresponding to 2022, with obvious safety margin, maintaining the company’s buy rating.
Risk tips: 1) affected by QE in the United States, the increase of upstream metal materials exceeded expectations; 2) The company’s production schedule of etched lead frame is lower than expected; 3) Due to special changes in the packaging industry (such as trade war, technical change and other force majeure), the consumption of packaging lead frame fluctuates greatly
