NBTM New Materials is a leading domestic player in the powder metallurgy industry, and the significant increase in the shipment of Huawei foldable smartphones in 2024 will likely drive high growth in the Company's metal injection molding (MIM) business. We maintain our 2023E attributable net profit (ANP) forecast of Rmb205mn for the Company, and raise the 2024E/25E ANP forecasts to Rmb379mn/500mn (from Rmb259mn/340mn).

Considering that NBTM New Materials' consumer electronics products may fully benefit from the increased shipment of Huawei's foldable screen smartphones, along with the broad prospects for the soft metal magnetic materials (SMC) segment in the long run, as well as the potential benefits from the booming photovoltaic (PV) and energy storage industries going forward, we assign 25x 2024E PE, equivalent to a target price of Rmb16, and maintain the "BUY" rating.

Company overview: NBTM New Materials is currently the one and only enterprise that integrates three mainstream or trend-driven powder metallurgy technologies: press & sinter (P&S), soft magnetic composites (SMCs), and MIM. It is in the leading position in the domestic P&S industry, meanwhile both its SMC and MIM businesses are among the top in China. With the three major new material technology platforms as the cornerstone, the Company is committed to providing optimal material solutions and value-added services for new energy and high-end manufacturing. In 1H23, the Company posted revenue of Rmb1.763bn, down 0.92% YoY, and ANP of Rmb36mn, down 25.81% YoY.

The MIM industry is likely to ascend, with high growth in MIM demand driven by foldable smartphones.

According to the forecasts by International Data Corporation (IDC), a leading global provider of market insights, the global shipments of foldable smartphones will likely reach 21.4mn units in 2023 and 41.5mn units in 2026, corresponding to a CAGR of 24.7% over 2023E-26E. MIM parts are one of the most essential components for foldable screen hinges. We expect Huawei's 2023E-25E shipments of foldable smartphones to reach 2.5mn/6.0mn/11.9mn units, and the Company, as the main supplier of Huawei's foldable smartphone hinges, stands well to benefit fully.

The Company has entered the group of top MIM players through M&As, with an intension to introduce Shenzhen SASAC.

NBTM New Materials ventured into the MIM segment by acquiring Dongguan Huajing Powder Metallurgy in 2019 and Shanghai Future High-tech in 2020, marking its entry into the group of top MIM players. The Company's MIM sector revenue exceeded Rmb1bn three years in a row over 2020-2022.

Looking ahead, the Company plans to build three major bases: Shanghai MIM R&D center, Lianyungang MIM production base and South China MIM production base. In Sep 2023, NBTM New Materials announced that its subsidiary, Shanghai Future High-tech, intends to introduce an investor, whose actual controller is Shenzhen State-owned Assets Supervision and Administration Commission (SASAC), which seems favorable for achieving　　complementary resource advantages to jointly promote the development of Shanghai Future High-tech’s core business.

With the high demand for SMCs driven by NEVs and PV, the Company's production capacity is planned to exceed 100ktpa.

Benefiting from the rising prosperity in the PV and NEV industries, we expect the global demand for metal soft magnetic powder cores (SMPCs) to reach 355kt in 2025, corresponding to a CAGR of 23.1% over 2022-2025. NBTM New Materials’ subsidiary NBTM KeDa Magnetoelectricity (KDM) has a SMC production capacity of 40ktpa, and Shanxi TONGMUO Huasheng Powder Metallurgy, a joint venture by NBTM New Materials and Huasheng Davis Powder Metallurgy, has a SMC production capacity of 6ktpa. In addition, according to the Company’s announcement, it plans to build a SMC industrial base with a capacity of 60ktpa in Shanxi, with a long-term planned capacity of 106ktpa, ranking the first in the industry. In 1H23, the Company’s SMC sector achieved revenue of Rmb488mn, up 67.23% YoY.

With a solid leading position in the P&S business, the Company is exploring new technology application directions.

In 1H23, NBTM New Materials' P&S segment posted revenue of Rmb876mn, down 1.77% YoY, mainly due to the YoY decline of 6.11% in the revenue from the core business of the home electronic appliances segment. According to the data from Powder Metallurgy Association of China General Machine Components Industry Association (CMPMA), the Company's market share in the powder metallurgy industry reached 26.7% in 2022, maintaining the first position for most of the time. According to the Company’s announcement, in May 2023, Ningbo NBTM, a joint venture by NBTM New Materials and Ningbo Xinjinguang Investment Management, acquired a 3% equity share in SEMOTOR, which is conducive to enhancing the Company's technological research on the application of electric motor and non-vehicle P&S.

Potential risks: Lower-than-expected downstream demand; the progress of the Company's capacity expansion missing expectations; an increase in raw material prices; large fluctuations in exchange rates; intensified industry competition.

Investment recommendation: NBTM New Materials is a powder metallurgy leader in China. We expect that the substantial increase in the shipments of Huawei’s foldable smartphones in 2024 will drive high growth of the Company's MIM business. We maintain our 2023E ANP forecast for the Company and revise up the 2024E/25E ANP forecasts to Rmb379mn/500mn from Rmb259mn/340mn, corresponding to 2023E-25E EPS of Rmb0.33/0.62/0.81, respectively. We select POCO Holding (300811.SZ), Sinomag Technology (300835.SZ), Yunlu Advanced Materials (688190.SH) and Yuean Advanced Materials (688786.SH) as comparable companies, and arrive at an average comps valuation of 20x 2024E PE for the above companies based on Wind consensus estimates.

Considering that the Company's consumer electronics products stand well to fully benefit from the shipment ramp-up of Huawei's foldable smartphones, along with the broad growth prospects for its SMC business in the long run, and the potential benefits from the booming PV and energy storage industries going forward, we predict that the Company should enjoy a valuation premium higher than the industry average and thus assign 25x 2024E PE, equivalent to a target price of Rmb16. We maintain the "BUY" rating.