Company Reports

We have made no change to our forecasts and fair value estimate on Han’s Laser after the company posted first-quarter 2024 results, which were only a week after its fourth-quarter 2023 numbers. Han’s Laser is fairly valued, and we prefer Luxshare Precision for investors who are bullish on the consumer electronics segment, and Hikvision for a macro play.

We maintain our fair value estimate for Han’s Laser of CNY 20 as a gradual recovery in consumer electronics is weighed down by gluts in electric vehicles, lithium batteries, and solar power-generation industries. We view the stock as fairly valued and prefer surveillance and automation product vendor Hikvision as a China industrial recovery play. Two possible upside catalysts are the company’s commitment to repurchase almost CNY 200 million worth of stock by May 2 and artificial intelligence features successfully spurring replacement demand in consumer electronics.

Han’s Laser Technology Industry Group is the largest laser equipment provider in China. Laser equipment makes up 85% of the firm's revenue, of which 10%-15% relates to the Apple supply chain. Han’s Laser used to benefit from preferential access to a supplier’s lasers, but in recent years, domestic laser suppliers started to offer cheaper substitutes, starting from low-end lasers. This, combined with US-China tensions, has driven the firm to develop lasers in house. While technical know-how of lasers can be valuable, a moat based on cost advantage is unlikely as Chinese laser firms are catching up with global leaders. We anticipate competitors can offer cheaper laser equipment by leveraging cheaper local lasers, which may weigh on Han’s Laser’s margins for the next three to five years.

We maintain our CNY 20 fair value estimate for no-moat Han’s Laser and CNY 64 fair value estimate for narrow-moat Shenzhen Inovance, ahead of both firms reporting 2023 results in April. We believe both companies are fairly valued. While Han’s Laser and Inovance benefit from their customers ramping up exports of electric vehicles, lithium batteries, and photovoltaic products, we believe margin pressures in EVs and battery equipment, and an unimpressive outlook in other sectors limit upside to the stocks.

We slash our fair value estimate for Han’s Laser to CNY 20 from CNY 33.50 amid disappointing fourth-quarter guidance, coupled with our more bearish view on the long-term outlook. We now expect most laser equipment related to consumer electronics, electric vehicles, and heavy industries to achieve 1% to 4% revenue CAGR up to 2027 instead of 5% to 10% previously. We view the stock as fairly valued.

Han’s Laser Technology Industry Group is the largest laser equipment provider in China. Laser equipment makes up 85% of the firm's revenue, of which 10%-15% relates to the Apple supply chain. Han’s Laser used to benefit from preferential access to a supplier’s lasers, but in recent years, domestic laser suppliers started to offer cheaper substitutes, starting from low-end lasers. This, combined with U.S.-China tensions, has driven the firm to develop lasers in house. While technical know-how of lasers can be valuable, a moat based on cost advantage is unlikely as Chinese laser firms are catching up with global leaders. We anticipate competitors can offer cheaper laser equipment by leveraging cheaper local lasers, which may weigh on Han’s Laser’s margins for the next three to five years.

We lower our fair value estimate on Han’s Laser to CNY 33.50 from CNY 36 after factoring in weak June quarter results and a cautious outlook. The stock remains undervalued as we believe the market prices in a long-term decline in corporate investments, especially printed circuit board, or PCB, which is unlikely the case. We believe demand growth for lithium batteries, solar battery equipment, and car-related high-power laser equipment sales can endure for the next decade.

Han’s Laser Technology Industry Group is the largest laser equipment provider in China. Laser equipment makes up 81% of the firm's revenue, of which 10%-15% relates to the Apple supply chain. Han’s Laser used to benefit from preferential access to a supplier’s lasers, but in recent years, domestic laser suppliers started to offer cheaper substitutes, starting from low-end lasers. This, combined with U.S.-China tensions, has driven the firm to develop lasers in house. While technical know-how of lasers can be valuable, a moat based on cost advantage is unlikely as Chinese laser firms are catching up with global leaders. We anticipate competitors can offer cheaper laser equipment by leveraging cheaper local lasers, which may weigh on Han’s Laser’s margins for the next three to five years.

We retain our fair value estimate on Han’s Laser at CNY 36 despite disappointing March-quarter results. Our earnings forecasts and fair value estimate are unchanged because we anticipate China’s rebound that started in March to continue for the remainder of the year, and Han’s Laser has a sizable backlog that limits revenue downside. The stock is undervalued, in our view, amid lack of visibility in printed circuit board investments, and fears of pricing pressure in the electric vehicle supply chain. We expect investments by telecom companies will eventually reinvigorate PCB demand and push Han’s Laser’s shares upward.

We retain our fair value estimate on Han’s Laser at CNY 36, corresponding to 22 times 2023 P/E, after introducing our 2027 earnings forecast and making minor changes to our model. Despite an uncertain outlook for semiconductor equipment, we view Han’s Laser as undervalued for its prospects in electric vehicle batteries and solar energy storage. We foresee more news of major EV battery investments and potential approval of an IPO of semiconductor and flat panel display, or SaFPD, operations to be the stock’s upside catalysts.

Han’s Laser Technology Industry Group is the largest laser equipment provider in China. Laser equipment makes up 81% of the firm's revenue, of which 10%-15% relates to the Apple supply chain. Han’s Laser used to benefit from preferential access to a supplier’s lasers, but in recent years, domestic laser suppliers started to offer cheaper substitutes, starting from low-end lasers. This, combined with U.S.-China tensions, has driven the firm to develop lasers in house. While technical know-how of lasers can be valuable, a moat based on cost advantage is unlikely as Chinese laser firms are catching up with global leaders. We anticipate competitors can offer cheaper laser equipment by leveraging cheaper local lasers, which may weigh on Han’s Laser’s margins for the next three to five years.

We maintain our CNY 36 fair value estimate on no-moat Han’s Laser before the company reports full-year 2022 results in early April. Han’s Laser is undervalued, in our view, as it benefits from increase in investments in electric vehicle, or EV, equipment, renewable energy and printed circuit boards. We expect Han’s Laser to outperform some of our smartphone-heavy names in the first half, because it has only about 15% exposure to the smartphone industry.

We have cut our fair value estimate for Han’s Laser to CNY 36 from CNY 44, corresponding to 20 times 2023 price/earnings, after reducing our 2022-26 earnings forecasts. This is a result of more conservative expectations for consumer electronics and printed circuit board, or PCB, equipment. The shares plunged 5% on Oct. 25 during China trading hours, but we still view Han’s Laser as undervalued for its prospects in electric vehicle batteries, semiconductors, and green energy. We foresee adoption of a titanium body on the iPhone 15 Ultra and potential approval of the semiconductor packaging subsidiary IPO to be the stock’s upside catalysts.

Han’s Laser Technology Industry Group is the largest laser equipment provider in China. Laser equipment makes up 76% of the firm's revenue, of which nearly one fifth relates to the Apple supply chain. Han’s Laser used to benefit from preferential access to a supplier’s lasers, but in recent years, domestic laser suppliers started to offer cheaper substitutes, starting from low-end lasers. This, combined with U.S.-China tensions, has driven the firm to develop lasers in house. While technical know-how of lasers can be valuable, a moat based on cost advantage is unlikely as Chinese laser firms are catching up with global leaders. We anticipate competitors can offer cheaper laser equipment by leveraging cheaper local lasers, which may weigh on Han’s Laser’s margins for the next three to five years.

Han’s Laser Technology Industry Group is the largest laser equipment provider in China. Laser equipment makes up 76% of the firm's revenue, of which nearly one-fifth relates to the Apple supply chain. Han’s Laser used to benefit from preferential access to a supplier’s lasers, but in recent years, domestic laser suppliers started to offer cheaper substitutes, starting from low-end lasers. This, combined with U.S.-China tensions, has driven the firm to develop lasers in-house. While technical know-how of lasers can be valuable, a moat based on cost advantage is unlikely as Chinese laser firms are catching up with global leaders. We anticipate competitors can offer cheaper laser equipment by leveraging cheaper local lasers, which may weigh on Han’s Laser’s margins for the next three to five years.

We cut our Fair Value Estimate on Han’s Laser to CNY 44, corresponding to 19 times 2023 P/E, after reducing our 2022-26 revenue and EPS estimates by 16% and 17%, respectively, on average. This is a result of more cautious expectations in consumer electronics and printed circuit board, or PCB, related equipment. Even after plunging 9% on Friday during China trading hours, we still regard Han’s Laser as undervalued and foresee tangible government support, revigorated consumer electronics demand, and continued localization to push the share price higher.

We maintain our fair value estimate of CNY 49 after Han’s Laser posted underwhelming first-quarter 2022 results. We trim 2022 revenue and diluted EPS forecasts by 6% and 10%, respectively, mostly due to lockdown disruptions in Shanghai. However, our projections for 2023 and thereafter are largely unchanged due to long-term momentum in vehicle electrification and Internet of Things, which spurs demand for printed circuit boards and batteries. The stock is now trading at 15 times 2022 P/E, nearly its five-year low. The ticker appears oversold on lockdown fears and macroeconomic pressure, and we believe Shanghai officially exiting lockdown plus government fiscal support would improve sentiment in coming quarters.

We retain our CNY 49 fair value estimate on Han’s Laser, corresponding to 21 times 2022 P/E. This is a result of higher revenue forecasts (9% on average) from more upbeat projections in electric vehicle, or EV, battery and printed circuit board, or PCB, related equipment; offset by lower gross margins from 2024 onward amid escalating laser equipment competition, and higher minority interest estimates after the listing of its subsidiary Han’s CNC. We view Han’s Laser’s shares as undervalued amid fears of supply chain disruptions. We anticipate the company’s moves to address the competition by developing new equipment for EV batteries, displays and semiconductor wafer preparation can limit margin downside, while maintaining top-line growth of about 9% beyond 2026.

Han’s Laser Technology Industry Group is the largest laser equipment provider in China. Laser equipment makes up 76% of the firm's revenue, of which nearly one-fifth relates to the Apple supply chain. Han’s Laser used to benefit from preferential access to a supplier’s lasers, but in recent years, domestic laser suppliers started to offer cheaper substitutes, starting from low-end lasers. This, combined with U.S.-China tensions, has driven the firm to develop lasers in-house. While technical know-how of lasers can be valuable, a moat based on cost advantage is unlikely as Chinese laser firms are catching up with global leaders. We anticipate competitors can offer cheaper laser equipment by leveraging cheaper local lasers, which may weigh on Han’s Laser’s margins for the next three to five years.

We have maintained our forecasts, and our fair value estimate is unchanged for now after Han’s Laser revealed preliminary 2021 net income of CNY 2 billion at the midpoint, doubling year on year and about CNY 275 million above our expectations. Fourth-quarter net income is CNY 500 million. We originally expected a muted fourth quarter owing to low China PMI figures in September and October and electricity curtailment, but we underestimated the rebound from November onward. The company’s announcement said shipments of printed circuit board, electric vehicle battery, and mini-LED equipment recorded strong year-on-year increases, but we suspect some of these are pulled forward in anticipation of the lunar new year in February 2022.