DONGWEI TECHNOLOGY(688700)：AN EQUIPMENT SUPPLY AGREEMENT OF RMB500MN SIGNED;INDUSTRIALIZATION OF COMPOSITE COPPER FOIL ACCELERATING

　　What's new
　　Dongwei Technology announced that it signed a cooperation framework agreement of Rmb500mn with customer D, under which Dongwei provides horizontal coating equipment. After delivery, installation, and commissioning of the first equipment, the remaining equipment is scheduled to be delivered within the next 2 years.
　　Comments
　　Industrialization of composite copper foil is accelerating after entering the mass production stage. Assuming a unit price of Rmb10mn, we believe this agreement includes a total of 50 units. This can help customer D build 17GW （i.e. 200mn square meters） of composite copper foil production capacity within 2 years. We believe that the signing of this cooperation framework agreement is another landmark event in the industry after Baoming Technology’s investments of Rmb6bn to expand production capacity of composite copper foil. This is because the production of composite copper foil has standardized properties （the substrate, equipment, and process are basically standardized）， and two companies have already expanded their production on a large scale. We believe the large-scale production capacity expansion will spread to Dongwei Technology’s current 20–30 customers. We assume that 10 companies expand production （10GW a year for each company）。 Demand for electroplating equipment may total Rmb3bn.
　　AFV equipped with composite copper foil batteries to be launched next year. We believe the composite copper foil will be applied in batteries for alternative fuel vehicles （AFV） starting from 2023. The safety of this type of battery will be the core selling point. We expect manufacturers of AFV batteries with first-mover advantages in composite copper foil to benefit. We suggest investors monitor capacity match between manufacturers of batteries and materials. The production capacity of composite copper foil equipment manufacturers will become a key element of the entire value chain, in our view.
　　The penetration rate of composite copper foil may depend on end consumers. We believe the penetration rate of composite copper foil does not depend on manufacturers of AFV, battery, materials, and equipment, but on end consumers. Given the low cost and high safety performance, we believe the penetration rate of composite copper foil will theoretically exceed 70%.
　　Financials and valuation
　　We leave our 2022 and 2023 EPS forecasts unchanged at Rmb1.72, and Rmb3.0 （44x 2023e P/E）。 To reflect better-than-expected production line equipment business, we raise our target price 10% to Rmb165.4 （55x 2023e P/E）， offering 27% upside. Maintain OUTPERFORM rating.
　　Risks
　　Disappointing industrialization of composite copper foil and marketing of new products; weaker-than-expected PCB market.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。