Date: 24 October 2024
Broker: UOB Kay Hian
Company Overview
Han’s Laser Industry Group is engaged in the development, manufacturing, and marketing of laser-based products used for cutting, welding, marking, and drilling various industrial materials. The company is classified under the Industrial Equipment sector, with a Bloomberg ticker of 002008 CH. It has a market capitalization of RMB 25.69 billion (approximately USD 3.72 billion) and has issued 1,052 million shares. Major shareholders include Shenzhen Han’s Industry Co., Ltd., holding 15.37%.
3Q24 Financial Performance
Revenue
Han’s Laser reported a 14.3% year-on-year (YoY) increase in revenue, reaching RMB 3.774 billion for the third quarter of 2024, slightly surpassing consensus estimates. Quarter-on-quarter (QoQ), revenue grew by 2%. Key drivers included robust performance in the Printed Circuit Board (PCB) and general laser equipment sectors, along with a recovering panel equipment business.
Net Profit
Net profit for 3Q24 declined by 4.2% YoY to RMB 200 million, missing consensus estimates. The decline was primarily due to higher-than-expected operating expenses (opex). Core net profit decreased by 8.6% YoY and 31.5% QoQ to RMB 155 million, compared to an expected RMB 258 million. The unfavorable tax rate also impacted earnings.
Margins
Gross margins improved slightly by 1.2% QoQ to 35.2%, aided by higher contributions from a North American smartphone customer, despite a slowdown in the consumer electronics segment. However, margins were down 2.9% YoY, reflecting increased competition and product mix changes.
Business Segment Performance
Consumer Electronics
The consumer electronics business declined by 10-15% YoY. Despite this, North American clients contributed positively, improving gross margins due to higher-margin products.
General Laser Equipment
The general laser equipment segment grew more than 20% YoY, benefiting from market share gains in high-power lasers and a recovery in general low-power laser equipment. This growth was attributed to expansion into new applications and the exit of a major competitor from the market.
PCB Equipment
The PCB equipment segment was a standout performer, with a 110% YoY surge to RMB 779 million. However, margins in this segment were under pressure due to competitive dynamics and product mix changes. The company expects sustainable growth in the PCB industry, driven by AI-related components and semi-capex.
Panel Equipment
The panel equipment business showed signs of recovery as capital expenditures in the sector began to pick up. However, the renewable energy-related segment lagged behind, with limited visibility for near-term growth.
4Q24 and 2025 Outlook
4Q24 Expectations
The company anticipates a slight decline in 4Q24 revenue, driven by reduced capex spending from Li-ion battery equipment customers. This decline is expected to be partially offset by continued strong performance in the PCB equipment segment.
2025 Growth Projections
Han’s Laser is optimistic about a recovery in 2025, expecting improved demand across several segments:
- PCB Growth: Sustained by AI-related semi and components demand.
- Consumer Electronics: Expected to rebound, driven by increased requirements for better heat management components, expansion in Southeast Asia, and new ultra-slim smartphone models.
- General Laser Equipment: Anticipated to benefit from new applications and continued market share gains.
Earnings Revision and Recommendation
UOB Kay Hian has revised its profit estimates for Han’s Laser for the 2024-2026 period, cutting forecasts by 31.2% for 2024, 5.3% for 2025, and 2.3% for 2026. The broker downgraded the stock from “Buy” to “Hold,” citing fair valuation after a recent rally. The target price has been reduced to RMB 22.70, reflecting a 17.7x PE multiple for 2025, pegged at one standard deviation below the historical mean.
Key Financial Metrics
Profit and Loss (in RMB millions)
- 2023 Net Turnover: 14,091
- 2024F Net Turnover: 14,619
- 2025F Net Turnover: 15,934
- 2026F Net Turnover: 16,947
EBITDA Margins
- 2024F: 7.5%
- 2025F: 10.0%
- 2026F: 11.5%
Net Profit Growth
- 2024F YoY: 101.2% (expected recovery after the decline in previous periods)
- 2025F YoY: -18.3%
- 2026F YoY: 18.9%
Conclusion
While Han’s Laser has faced challenges in 3Q24, particularly with higher operating expenses and a decline in net profit, there are signs of potential recovery. The company remains well-positioned in the laser equipment market, with growth expected in key segments like PCB and consumer electronics. However, the short-term outlook for 4Q24 remains cautious, leading to a downgrade in the stock’s recommendation to “Hold.”
