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Stock research on global mid-cap companies, Evaluate Research

Equity Bottom-Up

Leoch International Technology / Equity Bottom-Up

Leoch International Technology [842_HK; HK$1060 million/US$138 million market cap] has already built-up its manufacturing capacity both locally and overseas, with a lithium-ion plant in China and two lead-acid plants in Vietnam in 2019 to capture tremendous opportunities arising from the 5G era and meet growing demands for compelling power solutions for the current and future market needs.
The company achieved solid performance in its Power Solutions business in the first half&nbsp; of 2021. Also, the battery delivery in terms of tons grew around 20% in the first half of 2021 year over year. PRC shipment rose in high single digit while overseas shipment rose around 50% from a year earlier. The increased volume of shipment was mainly contributed by export business when global production capacity was recovering slowly amid the unstable pandemic condition. &nbsp;
We believe with all the negatives behind, the company is geared up to deliver on further growth in FY2022 and beyond to make the best of its opportunities.&nbsp;
Maintain Long Term PT of HK$2.00; Short Term PT HK$1.50, 88% Upside
We continue to maintain a short term price target of HK$1.50 per share over a one year period which implies an upside of 88% over the current price of HK$0.80 per share as we feel the business performance will resume its upward growth momentum in the first half of FY2022 which will continue in FY2022 and beyond. &nbsp;
We maintain our long term price target of HK$2.00 per share as any recovery in the business and economic conditions would rerate the stock to higher levels. Our long term price target implies a P/E multiple of 11x on our FY2022 EPS estimate of RMB 16 cents and an EV/EBITDA multiple of 8X on our FY2022 EBITDA estimate of RMB468 mn.
With all the negatives factored into the stock price along with secular tailwinds expected post pandemic by the ongoing 5G network launch, increasing vehicle penetration in China and increasing demand for light electric vehicles, etc., we continue to remain positive on the stock. At the current levels, the stock is trading at extremely attractive multiples of just 4.4x P/E and 5.4x EV/EBITDA based on our FY2022 EPS and EBITDA estimates, respectively. Also, the stock trades at extremely attractive multiples of just 3.4x P/E and 4.4x EV/EBITDA based on our FY2023 EPS and EBITDA estimates, respectively.
Focus on Innovation to Generate Higher Revenues and Margins Going Forward
In 2021, the company continued to focus on innovation, to work closely with international and domestic battery experts and research institutions so as to research on new technologies and develop new products. The company continued working on new models of lead-acid and lithium-ion batteries and rolling out new products tailor-made for applications in the network power and motive market segments. These products included product series such as AGM VRLA batteries, VRLA-GEL battery, pure lead batteries, UPS high-rate batteries, marine batteries, railway batteries, start-stop batteries, automotive batteries, motorcycle batteries, OPzV, OPzS, PzS, PzV and PzB tubular plate batteries, golf cart batteries, scrubber sweeper batteries and electric vehicle batteries. New models of battery catering for the era of autonomous driving of smart cars are also expected to be launched in the near future. As on 31st December 2020, company’s battery R&amp;D team consisted of more than 350 researchers and related development &amp; sampling technicians. The company also owns 505 patents, with another 160 pending applications as on 26th March 2021. Focus on innovation is expected to sustain the growth momentum in revenues and contribute to higher margins for the company going forward.
5G: A Big Market Opportunity for Leoch
We believe that the new 5G investment cycle will drive significant growth in the size of the telecommunications backup power solution market in China and would definitely bring the company new growth opportunities in the near to medium-term. Being a global supplier of power solutions for telecommunications and data center industries,&nbsp;we believe Leoch will likely be one of the key beneficiaries of the global 5G revolution, experiencing exponential growth in its backup power solution business for the coming 5-10 years.
China is expected to see total investments on 5G networks reach US$411 bn in the period from 2020 to 2030, with 4.9 mn 5G base stations and 12 mn small cells being installed in the country by 2030. Technologies such as Internet of Things, big data and artificial intelligence have been developing rapidly, driving the growth of the global data center market. By 2020, the global and Chinese data center markets are expected to reach revenue of US$90 bn and US$30 bn respectively, with a 28% CAGR over the next three years.&nbsp;
It is expected that 5G will help accelerate the development of Internet of Things, big data, artificial intelligence and other technologies, driving the growth of the global data center market at an exponential rate. We believe that the increasing demand for backup power solutions in the data center market will help drive revenue growth for the company in the FY2022 and beyond as the global economic environment remains challenging in 2021.
For further details and financial model, please see our attached Business Update Report.

Leoch International Technology [842_HK; HK$1060 million/US$138 million market cap] has already built-up its manufacturing capacity both locally and overseas, with a lithium-ion plant in China and two lead-acid plants in Vietnam in 2019 to capture tremendous opportunities arising from the 5G era and meet growing demands for compelling power solutions for the current and future market needs.
The company achieved solid performance in its Power Solutions business in the first half&nbsp; of 2021. Also, the battery delivery in terms of tons grew around 20% in the first half of 2021 year over year. PRC shipment rose in high single digit while overseas shipment rose around 50% from a year earlier. The increased volume of shipment was mainly contributed by export business when global production capacity was recovering slowly amid the unstable pandemic condition. &nbsp;
We believe with all the negatives behind, the company is geared up to deliver on further growth in FY2022 and beyond to make the best of its opportunities.&nbsp;
Maintain Long Term PT of HK$2.00; Short Term PT HK$1.50, 88% Upside
We continue to maintain a short term price target of HK$1.50 per share over a one year period which implies an upside of 88% over the current price of HK$0.80 per share as we feel the business performance will resume its upward growth momentum in the first half of FY2022 which will continue in FY2022 and beyond. &nbsp;
We maintain our long term price target of HK$2.00 per share as any recovery in the business and economic conditions would rerate the stock to higher levels. Our long term price target implies a P/E multiple of 11x on our FY2022 EPS estimate of RMB 16 cents and an EV/EBITDA multiple of 8X on our FY2022 EBITDA estimate of RMB468 mn.
With all the negatives factored into the stock price along with secular tailwinds expected post pandemic by the ongoing 5G network launch, increasing vehicle penetration in China and increasing demand for light electric vehicles, etc., we continue to remain positive on the stock. At the current levels, the stock is trading at extremely attractive multiples of just 4.4x P/E and 5.4x EV/EBITDA based on our FY2022 EPS and EBITDA estimates, respectively. Also, the stock trades at extremely attractive multiples of just 3.4x P/E and 4.4x EV/EBITDA based on our FY2023 EPS and EBITDA estimates, respectively.
Focus on Innovation to Generate Higher Revenues and Margins Going Forward
In 2021, the company continued to focus on innovation, to work closely with international and domestic battery experts and research institutions so as to research on new technologies and develop new products. The company continued working on new models of lead-acid and lithium-ion batteries and rolling out new products tailor-made for applications in the network power and motive market segments. These products included product series such as AGM VRLA batteries, VRLA-GEL battery, pure lead batteries, UPS high-rate batteries, marine batteries, railway batteries, start-stop batteries, automotive batteries, motorcycle batteries, OPzV, OPzS, PzS, PzV and PzB tubular plate batteries, golf cart batteries, scrubber sweeper batteries and electric vehicle batteries. New models of battery catering for the era of autonomous driving of smart cars are also expected to be launched in the near future. As on 31st December 2020, company’s battery R&amp;D team consisted of more than 350 researchers and related development &amp; sampling technicians. The company also owns 505 patents, with another 160 pending applications as on 26th March 2021. Focus on innovation is expected to sustain the growth momentum in revenues and contribute to higher margins for the company going forward.
5G: A Big Market Opportunity for Leoch
We believe that the new 5G investment cycle will drive significant growth in the size of the telecommunications backup power solution market in China and would definitely bring the company new growth opportunities in the near to medium-term. Being a global supplier of power solutions for telecommunications and data center industries,&nbsp;we believe Leoch will likely be one of the key beneficiaries of the global 5G revolution, experiencing exponential growth in its backup power solution business for the coming 5-10 years.
China is expected to see total investments on 5G networks reach US$411 bn in the period from 2020 to 2030, with 4.9 mn 5G base stations and 12 mn small cells being installed in the country by 2030. Technologies such as Internet of Things, big data and artificial intelligence have been developing rapidly, driving the growth of the global data center market. By 2020, the global and Chinese data center markets are expected to reach revenue of US$90 bn and US$30 bn respectively, with a 28% CAGR over the next three years.&nbsp;
It is expected that 5G will help accelerate the development of Internet of Things, big data, artificial intelligence and other technologies, driving the growth of the global data center market at an exponential rate. We believe that the increasing demand for backup power solutions in the data center market will help drive revenue growth for the company in the FY2022 and beyond as the global economic environment remains challenging in 2021.
For further details and financial model, please see our attached Business Update Report.

Leoch [842]: 5G Play at 4.4x P/E 5.4x EV/EBITDA: Business Update Note