Aohai Technology has been leading cell phone chargers with a focus on intelligent terminal charging/storage products for more than a decade, and its global market share reached 15% in 2021. Underpinned by cell phone charging/storage technology, Aohai has expanded its product pipeline to other areas in consumer electronics, such as internet of things (IoT), personal computers (PCs), power tools and servers. Besides, it has been strategically building a presence in new energy power domain control units (DCUs), power charging/storage and photovoltaic (PV) products, etc.

In the long term, Aohai Technology is likely to continue to benefit from the charging technology upgrading and the development in IoT, new energy power DCUs and power charging/storage, with sustained efforts to empower its new business via multiple platform-based synergies. We are optimistic about Aohai Technology's medium and long-term business buildout and technological capabilities. We forecast its 2022E-24E EPS to be Rmb1.89/2.52/3.25 and initiate coverage with a “BUY” rating.

Company overview: A cell phone charger leader with a comprehensive customer base.

Aohai Technology has entered the field of cell phone chargers since its establishment in 2004 and has built a presence in links along the supply chain, such as gel cases, electrolytic capacitors and transformers, and ventured into IoT intelligent terminals in 2016, PCs in 2017, new energy vehicles (NEVs), power tools, in-house brands and servers in 2021, and PV inverters in 2022.

The Company boasts a comprehensive customer base, with cell phone charger customers including Xiaomi, Huawei, HONOR, OPPO, Vivo, Transsion, etc., third-party brand customers including Belkin, Mophie, etc., and IoT customers including Google, Amazon, Xiaomi, Huawei, etc. Its power supply capacity reached more than 300mn units in 2021, with cell phone charger capacity of more than 220mn units, accounting for 15% in the global cell phone charger market. In 2021, Aohai Technology achieved revenue of Rmb4.245bn (with the proportion of chargers and adapters/portable energy storage and others at 92.17%/7.83%, respectively), growing at a CAGR of 38.5% over the past four years. Its integrated gross profit margin (GPM) reached 18.22% in 2021 (with the proportion of chargers and adapters/portable energy storage and others at 18.37%/16.57%, respectively).

Looking ahead, Aohai Technology will focus on strengthening its presence in new energy underpinned by consumer electronics power supply technology, with sustained efforts to empower its new business via multiple platform-based synergies.

Consumer electronics charging/storage: A sector leader with a focus on high power upgrading, product pipeline expansion and in-house brand building.

In 2021, Aohai Technology’s charger and adapter segment posted operating revenue of Rmb3.913bn (up 40.45% YoY), with cell phone/IoT/PC revenue at Rmb2.9bn/0.567bn/0.19bn, and GPM of 18.37% (down 5.11ppts). We believe that the Company will continue to benefit from the sector-wide high-power upgrading, with breakthrough from 1 to N expansion in product pipelines and the building of independent brands. In 2021, Aohai Technology’s cell phone wired chargers gradually transited from 10-20W-dominated products to 20-40W-dominated ones, with a significant rise in the proportion of 60W+ chargers. We forecast that in 2022 the segment below 20W/20-40W/above 40W will account for 35%/40%/25%, respectively, with a likely accelerated share expansion of 20W+ products, which may point to a sustained uptrend in the average selling price (ASP). As for the product pipeline expansion, Aohai Technology is likely to proactively strengthen its presence in IoT, PCs, power tools and servers, etc. with cell phone charging/storage as the cornerstone. It is likely to post operating revenue of Rmb2.9bn/0.567bn/0.19bn for cell phones/IoT/PCs, respectively, in 2021, with IoT operating revenue up 69.8 YoY for more upside surprises. In terms of independent brands, Aohai Technology has been accelerating the brand building of "Aohi" and "Move Speed" with gradual promotion of various chargers on T-mall, JD.com, Pinduoduo, Amazon, eBay, Lazada and Douyin, etc. In 2021, the sales revenue of in-house brands exceeded Rmb40mn. We forecast the Company’s 2022E-24E operating revenue to be Rmb4.465bn/5.694bn/6.922bn for adapters and chargers, and Rmb366mn/402mn/443mn for portable energy storage and others, totaling Rmb4.831bn/6.097bn/7.365bn.

New energy power DCUs and power charging/storage: Ventured into new energy with a strategic buildout in NEVs and PV charging/storage.

In terms of sector buildout, we see a rosy picture ahead for NEVs and PV technology (with 2022 global growth prospects of NEV shipment exceeding 10mn units, and PV installations reaching 228GW, alongside more upside surprises for both sectors, which may point to sustained growth of sub-sectors, such as DCUs, charging piles and PV inverters, etc.). In addition to the interoperability between charging and storage technology, the Company may generate consolidated synergies between the supply chain and customer resources, laying a solid foundation for its new energy development. In terms of progress: 1) NEV: Aohai Technology acquired 67.2% of the stake in Zhixin Control System and 100% in Feiyouque New Energy, and has been actively building presence in motor control units (MCUs), battery management units (BMUs) and vehicle control units (VCUs), power supply and on-board electronic products. Among them, Zhixin Control System mainly focuses on VCUs, BMUs and VCUs, with customers covering domestic carmakers and joint car-making ventures, such as Dongfeng Motor, SAIC, Hongqi Auto, Dongfeng Honda, and likely to launch DCUs, namely, vehicle domain controllers (VDCs) and powertrain domain units (PDCUs), providing all-in-one solutions in DCUs. Currently, it has sufficient orders on hand. In 1Q22, it posted operating revenue of Rmb105mn, and is likely to accelerate the expansion of customer base in 2H22. We expect the full-year operating revenue to top Rmb500mn. Meanwhile, Feiyouque New Energy is mainly engaged in direct current (DC)/active current (AC) charging piles, charging modules, DC/DC converters, on-board chargers (OBCs), car battery chargers, etc., and is on track to promote further integration of NEV power supply and MCUs, BMUs and VCUs going forward. The charging piles and relevant solutions have entered the bidding list for State Grid projects, which may accelerate the introduction of downstream business to the Company. 2) PV technology: Aohai Technology will develop products including distributed PV inverters, inverter storage and outdoor energy storage, with a focus on small and medium-sized commercial customers and households, providing modular power supply solutions. We believe the Company will gradually launch and realize mass production of products in DCUs and PV inverters in the next two years, leveraging its accumulated technological know-how in power supply and interoperability between electronics and power technology, where the overall operating NEV revenue is likely to grow to Rmb1bn in a few years, making space for medium and long-term growth.

Potential risks:

Upstream raw material price hikes; weakening demand weighing on key customer sales; intensified sector competition; disappointing expansion of new energy business; the promotion of independent brands missing expectations; the recent share price spikes, etc.

Investment recommendation:

We forecast that Aohai Technology's 2022E-24E net profit to be Rmb445mn/593mn/763mn, equivalent to EPS of Rmb1.89/2.52/3.25.

Considering the Company's leading position in cell phone chargers, the continued growth in IoT and PCs, etc., as well as the buildout in new energy power DCUs and power charging/storage, we forecast the Company’s operating revenue and net profit to maintain high growth in the next two years.

From the PE perspective, based on the comps valuation for Delta Electronics (2308.TW), Anker Innovations (300866.SZ) and Click Technology (002782.SZ), with 2022E PE averaged at 29x, we expect the Company’s 2022E PE to be 21x, relatively underestimated compared with its peers. We assign 2022E 29x to the Company to derive a target price of Rmb55. In terms of PEG valuation, with the PEG for Anker Innovations (300866.SZ), Click Technology (002782.SZ) and Delta Electronics (2308.TW) at 1.04x/0.74x/1.09x, respectively, which averaged at 0.95x, we forecast Aohai Technology’s 2022E PEG to be 0.67x, also underestimated compared with its peers. We forecast the Company’s 2022E-24E net profit CAGR to be 30.9%, and assign 0.95x 2022E PEG to derive a target price of Rmb55. Considering the leading position of Aohai Technology, its premium customer base, as well as the edges in globalized buildout and supply chain, and combining PE and PEG valuations (29x 2022E PE and 0.95x 2022E PEG), we arrive at the target price of Rmb55 and initiate coverage with a “BUY” rating.