Han’s Laser: Shares Cheap Even Without Fully Factoring in Semiconductor Growth

We retain our fair value estimate on Han’s Laser 002008 at CNY 36, corresponding to 22 times 2023 P/E, after introducing our 2027 earnings forecast and making minor changes to our model. Despite an uncertain outlook for semiconductor equipment, we view Han’s Laser as undervalued for its prospects in electric vehicle batteries and solar energy storage. We foresee more news of major EV battery investments and potential approval of an IPO of semiconductor and flat panel display, or SaFPD, operations to be the stock’s upside catalysts.

We forecast 2023 firmwide sales to grow 16.3% year on year to CNY 17.4 billion, shy of management’s CNY 18.6 billion target, as we see some temporary hiccups in China’s economic recovery that affect EV battery and semiconductor equipment growth. Nonetheless, we anticipate Han’s Laser to benefit from increase in demand for EV batteries and solar energy storage equipment. We expect revenue CAGRs up to 2027 for the two categories to exceed 30% and 50%, respectively. Fears of slowdown in EV battery capacity are overblown in our view, as passenger EVs would only account for 30% of total passenger vehicle sales in 2025, even in China, the largest EV market. We see solar energy storage to be driven by new capacities in both China and abroad; as well as conversion demand from older solar battery facilities.

We view success of SaFPD, operations outside of China by the company presents incremental upside to our fair value estimate. While we think management’s target to grow revenue from SaFPD equipment by over 30% in 2023 from 2022′s CNY 2.1 billion is achievable, we have assumed growth to taper in subsequent years because we are less certain of Han’s Laser’s ability to capture non-Chinese markets. Han’s Laser plans to fuel its growth via wafer cutting equipment and wafer handling systems. We think domestic chip equipment makers like Naura and ACM Shanghai will be more receptive to Han’s Laser’s offerings due to cost and political considerations.