Investment Thesis

Click is mainly engaged in magnetic components and switching power supplies, and expands the business of new energy magnetic components:

The strong demand in the new energy market has driven the rapid growth of the company's revenue. In 2021 and 22Q1-3, Click achieves revenue of RMB 1.65 bn (+29% YoY) and RMB1.98 bn (+69% YoY)。 In 22Q2, the decline in the price of raw materials such as copper has led to cost improvement, while economies of scale and automation improvement drove the increase in gross profit margins.

Click is expected to achieve continuous growth by focusing on the development of magnetic components in the new energy field: According

to our calculations, the market size of magnetic components in the fields of automotive electronics, photovoltaic energy storage, and charging piles is expected to reach RMB40/10/6 bn by 2025, corresponding to CAGR of 2021- 2025 is 30/22/19%. 1) Click's R&D projects focus on magnetic components in the new energy field, and the cooperation with customers is progressing smoothly. 2) Click sets up a production base close to the location of major customers, expanding the production capacity of magnetic components in the new energy field. 3) Customers in the new energy field expanded smoothly.

Click builds strong alliances by M&A Highlight, realizing product

structure and customer synergy. In 22Q3, Click held a 64.25% stake in the Highlight, a domestic magnetic component manufacturer, and gained control.

In the future, the company is expected to achieve multi-faceted synergy with Highlight and further consolidate its leading position in domestic magnetic components. 1) Product structure synergy: Highlight's downstream involves new energy, high-end industry, and communications. After the completion of the merger, Click will consolidate its strong position in the field of new energy and further expand in the field of communications. 2) Customer collaboration: The company has significant advantages in overseas markets and customer resources, and the export sales ratio exceeds 50%. 3) Financing improvement: Highlight has a long-term shortage of production capacity due to limited investment and financing capabilities of its shareholders. After Click's acquisition of Highlight, it is expected to improve its financing capabilities.

Earnings Forecast & Rating: We predict that the company's net profit from 2022 to 2024 to be RMB0.15/0.4/0.56 bn, corresponding to PE of 50.4/19.3/13.7 X. We initiate with a "Buy" rating.

Risks: Downstream market demand is less than expected; industry competition has intensified; raw material price rose; investment profit and loss fluctuation risk.