The electronic components hidden in laptops are big business.
Author | Li Baiyu
Edited | Gao Yan
Source | Mustang Finance
The COVID-19 outbreak has changed many aspects of people's lives, including the way people work, and working from home has become the norm in many industries. In this case, the demand for laptops is rising rapidly, and the composition of a laptop requires a large number of accessories.
Chongqing Hongxi Technology Co., Ltd. (hereinafter referred to as "Hongxi Technology"), located in the southwest region, is mainly engaged in the design, development, production and sales of high-precision electronic wire components and electroacoustic devices in notebook computers. In recent years, Hongxi Technology's revenue has risen all the way, and it successfully landed on the Beijing Stock Exchange on February 28, 2022, and finally closed at 12.26 yuan / share, up 2.17%.
For HP and Lenovo to do electronic components and speakers, the annual revenue of 526 million
When you use a computer to easily access the Internet, have you ever wondered what the inside of the computer is made of? Ever cared about the sound quality when you play music on your computer? How does the monitor communicate with the mouse? How are motherboards and keyboards connected? In fact, computers and the human brain have a certain degree of similarity, and each component needs members similar to "blood vessels" to connect and work. Founded in 2010, Hongxi Technology mainly produces high-precision electronic cable components and micro speaker products connecting motherboards and displays, mainly in the field of consumer electronics mainly notebook computers.
The high-precision electronic wire components produced by Hongxi Technology mainly include very fine coaxial wire components, very fine Teflon wire components and other high-precision electronic wire components, which are mainly used to achieve high-frequency signal transmission between the display and the motherboard, as well as internal signal transmission, such as hard disks, display lights, etc.
As a necessity of modern life, laptop shipments are high every year and are still on the rise. According to international research institutes IDC and TrendForce data, the notebook market shipments in 2019 were 163 million units, reaching 200 million units in 2020, an increase of 22.48% year-on-year, and according to the market research agency Strategy Analytics research report, the global laptop shipments in 2021 were 268 million units.
In general, a notebook computer uses 1 very fine coaxial assembly or very thin Teflon wire assembly, as well as multiple other high-precision electronic cable assemblies, 1-2 pairs of micro speakers. According to the prospectus, the market capacity of high-precision electronic wire components is at least 200 million, and the market capacity of micro speakers is at least 200 million pairs. The unit prices of Hongxi Technology's 2020 extremely fine coaxial wire components, very fine Teflon wire components, other high-precision electronic wire components and micro speakers are 13.8 yuan, 7.02 yuan and 3.33 yuan and 6.03 yuan, respectively. The market space brought by this should not be underestimated.
In this case, the net profit of Hongxi Technology has shown an upward trend, with revenue of 314 million yuan and 436 million yuan in 2019 and 2020, and net profits of 28.61 million yuan and 37.91 million yuan respectively, and the products produced by Hongxi Technology have also been widely used in well-known brands such as HP and Lenovo.
According to the latest performance report, the net profit of Hongxi Technology in 2021 continued to rise, of which revenue increased by 20.73% to 526 million yuan, and net profit rose by 6.56% year-on-year to 40.39 million yuan. For the situation that the growth rate of revenue and net profit is not synchronized, there are two reasons, one is the external environment, because the main business income of Hongxi Technology is mainly settled in US dollars, and the overall exchange rate of the US dollar against the RENMINBI in 2021 shows a downward trend, resulting in the average unit price of the product pulling down; the second is due to the high degree of customization of Hongxi Technology's products, the design scheme of some customers in 2021 has changed, and the proportion of parts used at higher prices has declined, resulting in a slightly lower net profit growth rate than revenue.
The performance situation is also within the expected range of Hongxi Technology, which responded in the performance forecast, "During the reporting period, the company deeply cultivated the consumer electronics market, focused on the market demand for high-precision electronic wire components and micro speakers, continuously increased investment in research and development, continuously optimized the product structure, and improved production efficiency, so that the company's revenue scale and economic benefits have steadily increased." ”
In fact, in addition to the layout of the computer field, with the rapid development of 5G, AI, VR/AR, security and other fields, Hongxi Technology's products can also be applied in the above fields.
For example, in the field of security, coaxial line components can transmit the images of the front-end camera in real time, and the micro speakers can achieve the role of sound or intercom in the security equipment; in the AR/VR field, high-precision electronic wire components and micro speakers can be applied to AR glasses, VR headset equipment, etc., which can enhance intelligent auditory content.
The market prospects brought by different fields are also very broad. Among them, according to the data statistics of Shenzhen Security Industry Association, CPS China Security Network and Qiankun Public Safety Research Institute, the total revenue of the mainland security industry in 2019 was 826 billion yuan, and in 2020 it was 851 billion yuan, with an annual growth rate of 3%. According to IDC statistics and forecasts, the global VR/AR market size will be about 90 billion yuan in 2020, and the average annual growth rate is expected to be about 54% during the five-year period from 2020 to 2024, and the share of VR/AR will reach 240 billion yuan in 2024.
Image source: Hongxi Technology official website
35 patents, tens of millions of R & D investment
The market space is vast, what are the advantages of Hongxi Technology as a participant?
In fact, since its establishment in 2010, Hongxi Technology has continued to lay out in terms of product core technology, adhering to technological innovation and technology research and development, as of January 11, 2022, Hongxi Technology's 35 patents, including 1 invention patent, 34 utility models, of which high-endurance notebook LCD screen with high-definition internal wiring, SATA memory high-speed transmission line and other products were rated as Chongqing high-tech products.
The technology remains advanced, and it also brings continuous trust from customers at home and abroad. At present, Hongxi Technology has established stable cooperative relations with international well-known enterprises such as Compal, Inventec, Quanta, Lianbao, Wistron, Huaqin and other internationally renowned enterprises, all of which are internationally renowned notebook computer manufacturers. According to public information, in 2020, the shipments of notebook computers of Quanta, Renbao and Lianbao accounted for about 30%, 25% and 13% of the global market, respectively. At the same time, Hongxi Technology has also been recognized by terminal brands such as HP, Lenovo, Dell, Asus, Acer and other brands.
Image source: production workshop - Hongxi Technology official website
In cooperation with head manufacturers, Hongxi Technology occupies a certain market share. At present, most of the industry's market has been occupied by Hongxi Technology, Lixun Precision, Huasheng Electronics, Mingji Electronics four enterprises, the rest for some smaller companies, in the field of notebook computers, the company's high-precision electronic wire components shipment market share of about 20%.
Due to the high degree of customization of Hongxi Technology's products, it needs to be customized according to the different needs of customers, and the requirements for research and development and design are high. As of June 30, 2021, Hongxi Technology has a total of 152 R&D personnel, most of whom are technical backbones engaged in the research and development of high-precision electronic wire components and micro speaker technology and equipment for many years, with professional backgrounds covering electronics, electromagnetics, machining, electroacoustics, electromagnetic compatibility, process product design and other fields.
According to the Prospectus, from 2019 to June 2021, the research and development expenses of Hongxi Technology continued to rise, with 10.13 million yuan, 15.8 million yuan and 10.22 million yuan respectively, accounting for 3.22%, 3.63% and 4.15% of the total operating income, respectively.
Being able to get the trust of head manufacturers is inseparable from the scientific research strength of Hongxi Technology. "From the performance indicators of the main products, there are certain differences between the product performance indicators disclosed by the issuer and its main competitors, and Hongxi Technology can process products with thinner wire diameter, smaller single conductor diameter, and smaller pin spacing of connectors." The performance and quality of the product is a direct embodiment of the issuer's core technical strength. Hongxi Technology said in the "Prospectus".
Under the advantage of research and development, from 2019 to January to June 2021, the gross profit margin of Hongxi Technology remained at 25.98%, 24.99% and 23.18%. Compared with companies in the same industry, it can still maintain a certain advantage.
Source: Prospectus
The high-investment research and development has also accumulated a strong scientific and technological force for the future growth of Hongxi Technology.
The production and marketing rate is more than 100%, what is the growth space?
After looking at the past and looking at the future, how will the future growth of Hongxi Technology be?
First of all, from the perspective of business growth, the output and sales of hongxi technology's high-precision electronic wire components and micro speakers have shown an increasing trend, and the sales volume of high-precision electronic wire components in 2019 and 2020 are 36.9042 million and 54.5778 million, respectively, and 35.0992 million from January to June 2021, which has been the same as that of 2019 in half a year. Its production and marketing rate has always remained above 90%, of which 102.69% will reach in 2020.
Hongxi Technology's new business micro speakers in 2018 are also becoming its second growth curve, with sales rising rapidly, with 2.9318 million, 9.1451 million and 11.003 million from 2018 to 2020, and 6.838 million from January to June 2021, and the production and sales rate has also increased, reaching 113.08% in 2021.
The growth of product sales will naturally also bring about the growth of operating income, Anxin Securities expects that the revenue of Hongxi Technology in 2022 and 2023 will reach 565 million yuan and 634 million yuan, with a growth rate of 6.91% and 12.17% respectively; the net profit attributable to the mother will be 0.48 billion yuan and 0.55 billion yuan, with a growth rate of 15.51% and 15.15% respectively.
The production and marketing rate refers to the ratio of the total amount of products that have been sold by industrial enterprises in a certain period of time to the total amount of industrial products available for sale, which reflects the degree to which industrial products are produced and sold. The closer the production and marketing rate is to 1, the higher the degree of resource utilization. At the same time, this indicator also reflects the supply chain inventory level and product quality, and the closer its value is to 1, the smaller the inventory of finished products in the supply chain. The production and sales rate of more than 100% means that the output has not kept up with the sales volume.
"The company is in a period of rapid development, in terms of capacity expansion, product development, talent introduction and other aspects are in urgent need of sufficient financial support, only rely on their own profit accumulation and shareholder investment can not meet the company's rapid growth of capital needs." The company's capital scale is small, and the financing channels are relatively single, which is subject to certain constraints in terms of R&D investment, production, financing costs and efficiency. Companies need to further enhance their capital strength to enhance their market competitiveness. Hongxi Technology said.
The funds raised from this listing are to improve production efficiency and expand the scale of profitability. According to the prospectus, the 151 million yuan raised will be mainly used for the construction of two new projects, one is the construction project with an annual output of 13 million high-precision electronic wire components, and the other is the construction project with an annual output of 17 million new and micro speakers.
"The construction of the project can break through the bottleneck of the company's insufficient production capacity and meet the needs of the company's long-term development; improve the level of automated production, improve product quality and production efficiency; meet the needs of customers for multi-variety, multi-batch, and small batches; and help to enhance market share and expand the scale of profitability." Hongxi Technology said.
Secondly, from the perspective of financial data, the asset-liability ratio of Hongxi Technology has declined, from 62.62% in 2019 to 55.11% in 2020, the current ratio continues to rise, 1.3, 1.28 and 1.61 respectively, and the quick ratio exceeds 1 in 2020, which is 0.86, 0.78 and 1.17, respectively.
Among them, the current ratio refers to the ratio of current assets to current liabilities, generally speaking, the higher the ratio, the stronger the liquidity of enterprise assets, the stronger the short-term solvency; the quick ratio refers to the ratio of enterprises' quick assets to current liabilities, and it is generally believed that when this ratio is equal to or equal to greater than 1, there is sufficient ability to repay short-term liabilities.
Finally, there is the recognition from an external securities agency. According to the research report issued by Essence Securities, Hongxi Technology has been deeply engaged in the field of pen harnesses for more than ten years, and the net profit attributable to the mother cagr (compound annual growth rate) has reached 36%, which is one of the leading in the subdivision industry. It was given an overweight-A investment rating with a target price of 15.3 yuan / share, an increase from the issue price of 12 yuan / share.
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