Han’s Laser’s Nascent Products Increase Exposure in EVs, Green Energy and Automation; Shares Cheap

We maintain our CNY 36 fair value estimate on no-moat Han’s Laser 002008 before the company reports full-year 2022 results in early April. Han’s Laser is undervalued, in our view, as it benefits from increase in investments in electric vehicle, or EV, equipment, renewable energy and printed circuit boards. We expect Han’s Laser to outperform some of our smartphone-heavy names in the first half, because it has only about 15% exposure to the smartphone industry.

While Han’s Laser has not incurred significant revenue outside of China, it may change with the increase of overseas EV battery plants and supply chain diversification—including by Apple. A key EV battery equipment customer, Contemporary Amperex Technology, or CATL, struck a deal with Ford to license its battery technology for production in Michigan. In our view, more prevalent Chinese battery technology is a tailwind for equipment suppliers like Han’s Laser. Apple suppliers—some being customers of Han’s Laser—are building up capacity in India as well.

Other noteworthy things to look at include entry-level lithography machines (for LED displays), novel solar batteries, and industrial control systems. We reckon each of these products are immaterial to 2023 revenue, yet they benefit from long-term trends of automation and the transition to green energy. The potential of these products strengthens our confidence that Han’s Laser can deliver north of CNY 24 billion in 2026 revenue, or 8.4% 2021-26 CAGR; as well as maintaining mid-30s gross margins up to 2026.