Han’s Laser Earnings: Shares Cheap on Long-Term EV and Solar Prospects, and Rock Bottom Sentiment

We lower our fair value estimate on Han’s Laser 002008 to CNY 33.50 from CNY 36 after factoring in weak June quarter results and a cautious outlook. The stock remains undervalued as we believe the market prices in a long-term decline in corporate investments, especially printed circuit board, or PCB, which is unlikely the case. We believe demand growth for lithium batteries, solar battery equipment, and car-related high-power laser equipment sales can endure for the next decade.

Under a more downbeat view on China’s economy, we are cutting our 2023 to 2027 revenue and EPS forecasts by 13% and 11% on average, respectively. We assume 2023 PCB sales to plunge over one third and other laser equipment to grow only 10% year on year due to a widespread lack of confidence in investment.

However, our cuts imply long-term growth rates are little changed, backed by secular growth in several areas. First, we anticipate Han’s Laser to benefit from a global push in renewable energy through selling more lithium batteries used on cars, storage systems, and solar power generation. Second, there is a higher likelihood that China can export more electric vehicles at the expense of European automakers, benefiting sales of Han’s Laser’s high-power laser cutting and welding equipment. Third, the complexity of Apple’s Vision Pro presents a potential multiyear growth driver in various low-power laser equipment. The company has also budgeted USD 50 million to find a suitable site in North America in a bid to boost exports.

Han’s Laser’s second-quarter numbers trailed our expectations largely due to PCB makers remaining very cautious. Revenue grew 3% year on year to CNY 3.66 billion, of which PCB-related sales sunk 41% to CNY 470 million. Second-quarter revenue was 10% behind Pitchbook consensus, while year-to-date sales were only 35% of our April forecast. Generic laser equipment fared better.