DINGTONG PRECISION METAL(688668)：3Q22 SEES RAPID GROWTH; CAPACITY RAMP-UP ADVANCES STEADILY

　　Core views:
　　With the progress of key-account strategy and the expansion of new products, Dingtong maintains rapid growth in high-speed communication connectors. Its new energy vehicle (NEV) connectors and customer acquisition progress continue to exceed expectations. The Company has delivered products smoothly to its key customer BYD, a Chinese carmaker, and mass-produced products are likely to ramp up on a sequential basis. In the meantime, Dingtong’s private placement for capacity expansion is advancing smoothly, laying the foundation for sustainable high growth going forward. We maintain our 2022E/23E/24E EPS forecasts of Rmb2.28/3.34/4.57 and reiterate the target price of Rmb120 on 36x 2023E PE along with the “BUY” rating.
　　Abstract:
　　Earnings growth exceeded expectations in 3Q22. In 1-3Q22, the Company achieved revenue/attributable net profit (ANP) of Rmb658mn/136mn (+59.56%/+58.30% YoY). Its 3Q22 revenue/ANP reached Rmb235mn/49mn (+58.62%/+69.19%). The high earnings growth was mainly due to the continuous boom of high-speed communication connectors, the smooth expansion of corresponding product categories, and the strong demand for the cage-series products. NEV connectors also contributed to the earnings growth. With the prosperity of high-speed communication connectors and NEV connectors verified, we expect Dingtong’s earnings to achieve high growth in 2022.
　　Communication and NEV connectors show strong momentum. Dingtong continued to introduce the cage-series products to core customers and has successfully entered the cage-series supplier list of global renowned equipment vendors. At the same time, its high-speed communication connectors continue to upgrade, which would cause the value of each product and the gross profit margin to increase steadily. For example, the type of cage-series products has upgraded from a specification of 1x1 to 2x6, and that of structural parts has extended from 56GB/s to 112GB/s. In terms of NEV, Dingtong has gradually transformed its role from a tier-2 supplier to a tier-1 supplier, and the expansion of NEV customers continues to exceed expectations. The Company has started to deliver NEV products to BYD since 2Q22. Moving forward, it is likely to deepen cooperation with BYD while continuing to expand its customer base to cover domestic auto OEMs and battery pack factories. Dingtong also continues to promote the R&D of other product categories, including high-voltage connector modules, high-speed connectors, liquid cold plates, and precision structural parts, and we expect Dingtong to start small batch deliveries of these products through customer certification in the future.
　　Private placement for capacity expansion enhance the main business. In Apr 2022, Dingtong announced the private placement plan, which passed regulatory approval on Oct 14 and is now progressing smoothly. The Company plans to raise up to Rmb800mn, and the proceeds will be invested in the following fields: a high-speed communication connector component production project (Rmb388mn), and an NEV connector production project (Rmb252mn). As planned, the Company expects the first project to generate incremental production capacity of 47.7mn units, corresponding to an estimated annual increase of Rmb621mn/101mn in revenue/ANP, and the second to generate 24.9mn units, corresponding to an estimated annual increase of Rmb366mn/51.476mn in revenue/ANP. The capacity utilization rate has been maintained at a high level. The two core businesses are in an essential fast growth stage and show an uptrend on the back of strong demand. The new production facilities and the IPO-financed projects are all based in Xinyang, Henan Province. We believe a centralized production base will likely give full play to economies of scale in supply chain and production management.
　　Potential risks: Slower-than-expected development of new varieties certified by customers. Disappointing progress of 5G buildout in overseas markets. Progress of the proposed private placement and related projects missing expectation.
　　Investment advice: Dingtong has accumulated profound technical know-how in connector modules and formed stable long-term cooperative relationships with global leaders in the field. With the progress of its key-account strategy and the expansion of new products, Dingtong maintains rapid growth in high-speed communication connectors. Its NEV connectors and customer acquisition progress continue to exceed expectations. Dingtong has delivered products smoothly to its key customer BYD, and mass-produced products are likely to ramp up on a sequential basis. In the meantime, Dingtong’s private placement for capacity expansion is advancing smoothly, laying the foundation for sustainable high growth going forward. We maintain our 2022E/23E/24E EPS forecasts of Rmb2.28/3.34/4.57. Considering its expanded coverage of auto OEM customers and the smooth transition from a tier-2 to a tier-1 supplier, we expect the valuation framework to switch as well. Considering the average valuation of 31x 2023E PE of comparable peers-Recodeal (688800.SH), AVIC Jonhon Optronic (002179.SZ), Electric Connector Technology (300679.SZ) -and the rapid earnings growth of Dingtong (we forecast a revenue/net profit CAGR of 51%/53% in 2022-24), we assign 36x 2023E PE to Dingtong and reiterate the target price of Rmb120 along with the "BUY" rating.
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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。