Han’s Laser Earnings: Shares Cheap on EV and Solar Strength, China Rebound in Second Half

We retain our fair value estimate on Han’s Laser 002008 at CNY 36 despite disappointing March-quarter results. Our earnings forecasts and fair value estimate are unchanged because we anticipate China’s rebound that started in March to continue for the remainder of the year, and Han’s Laser has a sizable backlog that limits revenue downside. The stock is undervalued, in our view, amid lack of visibility in printed circuit board investments, and fears of pricing pressure in the electric vehicle supply chain. We expect investments by telecom companies will eventually reinvigorate PCB demand and push Han’s Laser’s shares upward.

Despite China’s slower-than-expected economic recovery, we retain our 2023 firmwide sales forecast at CNY 17.4 billion, based on Han’s Laser’s backlog, particularly in EV and solar battery equipment. For instance, the company has CNY 500 million worth of solar battery orders on the back of its CNY 1-billion 2023 sales target. We also observed confidence in capital spending in China has been slowly returning since March. As a result, while the sales decline in the March quarter was disappointing, we expect sales to return to a growth trajectory starting in the June quarter to achieve our full-year sales growth forecast of 16.3%. We think shares are undervalued even under a bear-case scenario that drags 2023 revenue to CNY 15 billion (flat versus 2022). This scenario includes underwhelming recovery in China and sales in segments including PCBs, EV batteries, and solar battery equipment all being recognized later than expected (despite confirmed orders).

Han’s Laser’s first-quarter numbers fell behind our expectations largely due to PCB makers paring back investments on uneven utilization rates. Revenue tumbled 29% year on year to CNY 2.43 billion, of which PCB-related sales tanked more than two-thirds to CNY 301 million on insufficient utilization of incumbent capacity.