Bozhon Precision is a leading manufacturer of consumer electronics automation equipment. It has gained solid foothold in the consumer electronics sector and faces significant opportunities in the rapidly growing extended reality （XR） sector. Meanwhile, the Company is leveraging its solid hardware and software foundational technologies to expand into new energy lithium-ion equipment, charging and swapping equipment, and automotive components, which start a second growth curve. Additionally, through deployment in semiconductor, robotics and other domains, the Company is gathering strength to build its third growth curve. Bozhon Precision is also actively reducing costs and increasing efficiency to enhance profitability, achieving both volume and margin growth. We expect its net profit margin （NPM） to gradually increase from the current 6.8% to 10%. We forecast its EPS for 2023E-2025E to be Rmb1.02/1.40/1.83 respectively. Considering both absolute and relative valuation methods, we believe its fair valuation is Rmb16bn, corresponding to a target price of Rmb36 for 2023E. We initiate coverage with a “BUY” rating.
A leader in consumer electronics automation with more than two decades of solid experience in equipment manufacturing.
Established in 2001, the Company has primarily focused on consumer electronics, new energy, semiconductors, robotics, and key component sectors. It has forged close relationship with global leaders like Apple, Siemens, Huawei, Foxconn, CATL, etc. Now the Company ranks among Apple's largest domestic suppliers of automated assembly equipment in the final assembly test & package （FATP） segment. Reviewing the Company's developmental trajectory, we notice that it strategically developed underlying automation hardware and software technologies, and through technology migration, replication and upgrades, it consistently explored and expanded into new domains in tandem with their clients. At present, we believe the Company's four major strengths form a positive feedback loop, continually broadening its competitive moat and supporting sustained growth in the future.
Consumer electronics business: Improved performance from the turning point of industry prosperity, and new potential from XR.
We anticipate a mutually beneficial resonance between supply and demand to drive an upward market cycle. We estimate the consumer electronics device market to exceed Rmb100bn. The Company's revenue growth typically surpasses Apple's, so we expect it to benefit from the recovery in industry sentiment. In Jun 2023, Apple introduced the Vision Pro, which may greatly stimulate the growth of the XR sector. Correspondingly, XR devices are likely to grow rapidly, and we expect it to lead to the expansion of the XR automation equipment market size from Rmb6.08bn in 2025 to Rmb256bn in 2030. The Company is well-positioned to spearhead the trend of flexible modular production lines, expanding its market share and promoting industry-wide adoption going forward.
New energy solutions: Forging a second growth curve.
1） Lithium-ion equipment: Embracing the trend of Integrated cutting and stacking, the Company has skillfully transitioned its existing consumer electronics lithium battery manufacturing capabilities and resources. It now focuses on the lithium-ion post-processing stages such as electrolyte filling and integrated stacking equipment. As forecasted by GGII lithium battery research, the market space for electrolyte filling and integrated stacking equipment exceeds Rmb20bn. 2） Charging and swapping solutions: We expect the economic benefits of battery swapping will drive planned construction. By 2025, we estimate a completion of 40,000 battery swapping stations domestically. The Company's early-entry advantage, broad client base, iterative technological improvements in battery swapping, and capacity expansion through private placements are likely to contribute significantly to the development of this segment. 3） Automotive component equipment: We estimate the market size for replacing existing automotive component equipment is nearly Rmb200bn. With deep involvement in this sector, the Company has comprehensive capabilities in automotive component manufacturing processes. We anticipate that Apple's car venture will follow its current supply chain management model, directly designating equipment suppliers and engaging in joint research and development. Tesla might follow a similar model. The Company may greatly benefit from this trend.
Other equipment: Deployment in incremental markets such as semiconductor equipment, robotics may build the third growth curve. Semiconductor equipment: Amid the trend of domestic substitution, the short-to-medium-term outlook for back-end packaging and testing equipment is positive. The Company's current focus lies on high-speed flip-chip bonding machines, die bonders, and AOI inspection equipment. In the current context of rapidly increasing AI-driven demand for high-speed optical modules, the high-speed flip-chip bonders of core equipment are poised to benefit substantially. We anticipate the global market size for these machines to be Rmb2bn in 2022. With a broad space of domestic substitution, the Qianzhan Industrial Research Institute （Forward） estimates the China AOI equipment market to grow from Rmb21.1bn in 2022 to Rmb36.8bn 2026, with a CAGR of 15%. According to data from Yole Development and Besi, the global die bonder equipment market is expected to grow from US$980mn in 2018 to US$1.91bn in 2022, with a CAGR of 18%. As a leading automation equipment provider, the Company's substantial technological foundation bolsters its semiconductor business development, actively supporting capacity expansion. Robotics and key components: Industrial robotics are on a steady growth trajectory. According to projections from MarketsandMarkets and Vantage Market Research, the global humanoid robot market is predicted to expand from US$1.5bn in 2022 to US$17.3bn in 2027, with a CAGR of 63%, and the global industrial robotics market is forecasted to grow from US$50.4bn to US$123.8bn, with a CAGR of 20%. The Company is deeply engaged in national robotics standards. This enables internal cost reduction and efficiency improvement, while generating external revenue through sales. These factors position the Company to benefit from the concept of robotics.
Risk factors:
Development in downstream industries falling short of expectations; new customer acquisition missing expectations; failure to control expense ratios leading to decreased profitability; risks associated with heavy reliance on a few major clients; intensified industry competition; risks linked to technological upgrades and iterations.
Profit forecast, valuation, and rating:
Bozhon Precision is a leader in consumer electronics automation with more than two decades of solid experience in equipment manufacturing. In the consumer electronics segment, the Company is well-positioned to benefit from industry recovery that boosts beta and increased supply share through flexible production lines. Meanwhile, the rapid growth of the XR sector will boost the growth of XR devices, potentially benefiting the Company. New energy business opens the second growth curve: In the realm of lithium-ion equipment, the Company aligns with the trend of integrated stacking, leveraging its existing consumer electronics lithium battery capabilities and resources. This is achieved through a strategic focus on core equipment and key clients. In the charging and swapping segment, the Company is at the forefront of driving the growth of the battery swapping industry, serving a broad clientele. With current economic benefits becoming evident, there is potential for accelerated expansion. For automotive component equipment business, leveraging its comprehensive capabilities and status as a supplier to Apple, it is set to benefit from the new energy vehicle supply chains related to Apple and Tesla. Its other businesses will also forge a third growth curve, including semiconductor equipment - embracing domestic substitution and AI trends, the Company's strategic layout of equipment like flip-chip bonders and die bonders is progressing smoothly, and robotics and key components - deeply engaged in national robotics standards, the Company possesses substantial technological expertise, and achieves internal cost reduction, efficiency improvement, and external revenue through sales, positioning it to benefit from the robotics concept. We expect the Company's EPS for 2023E-2025E to be Rmb1.02/1.40/1.83. Using the absolute valuation approach, we project the Company's fair valuation is ranged at Rmb13.31bn-19.99bn. Under the relative valuation approach, we assign 35x 2023E PE to derive a target market cap of Rmb16bn. Considering both absolute and relative valuation methods, we believe its fair valuation is Rmb16bn, corresponding to a target price of Rmb36 for 2023E. We initiate coverage with a “BUY” rating.
