Han’s Laser Earnings: EV Worse Than Expected; Shares No Longer Cheap as Negatives Mount

We slash our fair value estimate for Han’s Laser 002008 to CNY 20 from CNY 33.50 amid disappointing fourth-quarter guidance, coupled with our more bearish view on the long-term outlook. We now expect most laser equipment related to consumer electronics, electric vehicles, and heavy industries to achieve 1% to 4% revenue CAGR up to 2027 instead of 5% to 10% previously. We view the stock as fairly valued.

We believe long-term concerns about the company are more likely to materialize, resulting in an average reduction in our 2024 to 2027 revenue and EPS forecasts by 17.5% and 54.7%, respectively. While we still see Apple’s supply chain diversification to secure a floor in demand, Apple suppliers are less likely than before to spend heavily on laser equipment amid stabling iPhone and Mac volumes. As a result, we anticipate growth in equipment used on consumer electronics will grow an average of under 2% a year up to 2027, from 5% before. Apple’s mixed reality headset Vision Pro offers some upside potential, but visibility is too low to assume it will become a blockbuster on par with AirPods.

The outlook for EV battery equipment warrants more caution too, as EV battery producers are facing underutilization. Per industry association data, year-to-date only just over 70% of 491.5 gigawatt hours of EV batteries produced in China are either put in cars or exported, leaving some 2 million Tesla’s worth of batteries (146 GWh) accounted for. Even though we expect hybrid and battery EVs to make up 40% of global new car sales by 2030, allowing incumbent capacity to fill up is more feasible than building new plants in the next two to three years, leading to our new 3% sales CAGR from 10% before up to 2027 for Han’s Laser equipment sales.

We now assume competition on high-powered laser equipment will depress prices and revenue growth longer than previously, hence a lower sales CAGR of 4% versus 8%.