Farad Electronics: Capacity limits the growth space of performance in 2007

kgi securities

Wei Hongda

Capacity factors limited the operating growth in 2007

In 2006, with the significant growth in the shipment of film capacitors for green lighting products (energy-saving lamps, electronic rectifiers, HID lamps), the accumulated revenue and net profit in the first three quarters reached 367 million yuan and 85.16 million yuan, respectively, an increase of 27.3% and 28.4%, and the EPS reached 0.38 yuan. We estimated that the revenue and net profit in 2006 were 504 million yuan and 110 million yuan, respectively, an increase of about 26% and 29%, and the EPS reached 0.49 yuan.

Looking forward to 2007, the company's current annual production capacity is about 2.5 billion, and the shipment volume in 2006 is about 2.1-22 billion, an increase of about 20%. With the existing factory buildings no longer having spare space to expand production equipment, the performance growth in 2007 will inevitably be lower than the level in 2006.

The new production base will be completed by the end of 2007, and the relocation will be completed in the first half of 2008

The production base covering an area of 128000 square meters is expected to be delivered in December 2007. By then, the production equipment of the old factory will be gradually transferred to the new factory. The annual production capacity of the new production base is planned to be about 3.5-38 billion pieces. However, the equipment investment will be gradually increased depending on the order status, not in place all at once. At present, the company's film capacitors are mainly used in energy-saving lamps, household appliances, communications and computers, Among them, energy-saving lamps have a relatively rapid growth rate. After the new factory is put into operation, the products will continue to develop towards miniaturization and refinement, and the product field will also be extended. In addition to meeting the customers' demand for full purchase at one time on the basis of existing customers, the development of the automotive film capacitor market should be the key development direction of the company in the future, but the company follows its own brand development path, In addition, the certification of automotive electronic parts takes a long time and requires high quality. Generally, automotive electronic manufacturers will not easily replace existing parts suppliers. It will inevitably take a long time for the company to seize the market from Panasonic in Japan or EPCOS in Germany and other international manufacturers. At present, the company is still in the stage of small shipment certification of automotive electronic film capacitors, We believe that the company's automotive film capacitor products will not have the opportunity to make a breakthrough until the second half of 2008.

EPS in 2007 and 2008 was 0.57 yuan and 0.68 yuan respectively

Although the shipment of film capacitors for energy-saving lamps will continue to grow, the performance in 2007 will also be limited by tight capacity. We only slightly increased the revenue in 2007 to 580 million yuan, an increase of about 1.8%, and a growth of 15%. In terms of profit, due to the adjustment of the product portfolio to high-end products, we increased the gross profit estimate for 2007 from 37% to 37.5%, and the net profit after adjustment was 128 million yuan, an increase of about 4%, and a growth of 16%, EPS reaches 0.57 yuan.

Looking forward to 2008, the key work in the first half of 2008 is to successfully complete the relocation of the factory. Without a major breakthrough in vehicle film capacitors, we believe that the company's pace of capacity expansion will also be to maintain a conservative and steady way to gradually expand. We estimate that the revenue and profit in 2008 will be 680 million yuan and 152 million yuan, respectively, with an increase of 17% and 18.7%, and EPS of 0.68 yuan.

Company evaluation and investment suggestions

Due to limited capacity, it is estimated that the performance growth in 2007 will fall back, and the combination of two taxes will probably increase the applicable tax rate of the company (currently the applicable tax rate is 15%). We estimate that the EPS in 2007 and 2008 will be 0.57 yuan and 0.68 yuan respectively. We will give the company 25 times the target PE ratio, and the one-year target price will be raised from 13.4 yuan to 15.5 yuan based on the two-year average EPS of 0.62 yuan, At present, the potential upside is 4.7%, and the rating remains "hold".