Han’s Laser Earnings: Shares Cheap on Long-Term EV and Solar Prospects, and Rock Bottom Sentiment
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We lower our fair value estimate on Han’s Laser 002008 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.
Under a more downbeat view on China’s economy, we are cutting our 2023 to 2027 revenue and EPS forecasts by 13% and 11% on average, respectively. We assume 2023 PCB sales to plunge over one third and other laser equipment to grow only 10% year on year due to a widespread lack of confidence in investment.
However, our cuts imply long-term growth rates are little changed, backed by secular growth in several areas. First, we anticipate Han’s Laser to benefit from a global push in renewable energy through selling more lithium batteries used on cars, storage systems, and solar power generation. Second, there is a higher likelihood that China can export more electric vehicles at the expense of European automakers, benefiting sales of Han’s Laser’s high-power laser cutting and welding equipment. Third, the complexity of Apple’s Vision Pro presents a potential multiyear growth driver in various low-power laser equipment. The company has also budgeted USD 50 million to find a suitable site in North America in a bid to boost exports.
Han’s Laser’s second-quarter numbers trailed our expectations largely due to PCB makers remaining very cautious. Revenue grew 3% year on year to CNY 3.66 billion, of which PCB-related sales sunk 41% to CNY 470 million. Second-quarter revenue was 10% behind Pitchbook consensus, while year-to-date sales were only 35% of our April forecast. Generic laser equipment fared better.
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