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ai+"Empowered, mobile phones, PCs and computers have sprung up. AI is the new quality of productivity; AI is the underlying logic of innovation.
The shining debut of AI has caused the stock prices of A-share listed companies in the electronics assembly industry to fluctuate frequently, bringing short-term excess returns to investors.
Today, let's talk about the electronic assembly industry, and teach you to judge the investment value of companies in the electronic assembly industry with two indicators. New quality productivity has been repeatedly mentioned, how to nugget related industries? #
OEM vs. ODM
OEM (Original Equipment Manufacturing) refers to a production method in which a manufacturer is commissioned by a brand company (such as Apple or Huawei) to develop and manufacture products, and then delivers the finished product to the brand company. For example, many well-known medical companies around the world, such as Omron and Abbott's blood pressure devices and blood sugar machines, are entrusted to mainland manufacturers. OEMs are still the business model for most small and medium-sized manufacturing industries.
ODM (Original Design Manufacturing) refers to the production method in which the manufacturer accepts the invitation or request of the brand manufacturer to participate in the improvement of the product or even the design of the new product, and the subsequent production, and then submits the finished product to the brand company, for example, Apple invites Hon Hai to participate in the development of each generation of iPhone. (Due to the advantages of the ODM model such as scale effect and technology reuse, brand manufacturers can obtain high-quality and low-cost services.) And for consumers, in the downturn of the economy, they are also more inclined to buy cost-effective models. Based on the above characteristics, the ODM model is favored by more and more brand manufacturers. ）
After years of development, there are three main types of manufacturers in the smart hardware industry that adopt the ODM model.
Class 1: It is a typical ODM manufacturer represented by Huaqin Technology, Longcheer Technology, Wingtech Technology, Quanta, Wistron, Inventec, Pegatron, etc., which is positioned as an ODM manufacturer when it is transformed or established from a design company, and its main business is to provide ODM services to smart hardware brand manufacturers such as smart phones;
The second category: EMS manufacturers with strong R&D capabilities represented by Foxconn and BYD Electronics, while providing EMS services, have also begun to provide intelligent hardware products and services in ODM mode in recent years;
The third category: it is a parts manufacturer with strong vertical integration ability of key components represented by Lixun Precision and Goertek, which has begun to get involved in the whole machine business while providing key components.
1. High accounts receivable and inventory
Because it is at the bottom of the industrial chain, there are a lot of raw materials purchased, and the value of the assembled products is very high.
Taking Hon Hai as an example, at the end of 2022, its accounts receivable and inventory amounted to RMB 266.8 billion and RMB 213.4 billion, respectively. Hon Hai's receivables to total assets have remained at around 30% all year round.
Taking Huaqin Technology as an example, in the 2022 annual report, the amount of accounts receivable and inventory is as high as 14.3 billion yuan, 621.1 billion, accounting for the proportion of total assets. 17%。
Many investors are worried and even afraid when they see the accounts receivable and inventory amount of listed companies in the electronic assembly industry. But in fact, taking Hon Hai as an example, at the end of 2022, if the accounts receivable are converted into accounts receivable turnover days, it will only be 61 days, and the inventory turnover days will only be 46 days.
We select electronic assembly listed companies in Chinese mainland and Taiwan:
In terms of the number of days of accounts receivable in the industry, the median is 60-70 days.
Inventory turnover days, 2018-2023 median around 40 days.
From the perspective of business cycle, the median of the industry in 2022 is 107 days.
Taking Huaqin Technology as an example, the turnover of accounts receivable is very fast, so there is no need to worry about bad debts, and in addition, the companies that owe money are generally large-scale high-quality companies with high reputation and high reputation.
Huaqin Technology's top five main customers in 2022 are: Lenovo, Samsung, Xiaomi, Huawei, and Asus.
Second, cash and cash equivalents are high
In Chinese mainland electronics assembly plants, the median industry has basically fluctuated around 15% in the past five years, while Hon Hai and Quanta have maintained more than 25% for many years.
The strategy of the mainland electronics assembly plant is relatively aggressive, and once it encounters a crisis, especially the financial crisis, the ability to resist risks can be seen.
Third, current assets are much larger than non-current assets
Because the amount of cash, accounts receivable and inventory in current assets is too large, and the electronic assembly industry purchases components and mold assemblies upstream and then assembles them into finished products, this production method does not require much production equipment (although the absolute amount is still very high), and the phenomenon that current assets are much larger than non-current assets will be formed. This is the opposite of the situation where the upstream foundry industry needs huge production equipment.
Take the 2022 annual reports of Hon Hai and Huaqin Technology as an example: the ratio of cash and cash equivalents (monetary funds + trading financial assets) + receivables + inventory to total assets, Hon Hai is 77%, and Huaqin Technology is 6623%。
Fourth, the asset-liability ratio is high
The reason for the high debt ratio is mainly engaged in the electronic assembly industry, which is located in the most downstream of the industry, and the selling price of both raw materials and final products is very high, which makes its current assets (mainly from accounts receivable and inventory) and current liabilities (mainly from accounts payable and other payables) have a higher ratio of total assets than other industries.
The huge current liabilities make it difficult for the electronics assembly industry to keep the debt ratio small. The huge liquid assets, especially the good quality of accounts receivable, and stable performance, make some electronic assembly industries able and willing to borrow money from banks and bear the risks brought by high debt ratios.
The median debt-to-asset ratio in 2022 is 6353%
The median current ratio for the industry in 2022 is 120
Fifth, the operating income is high
The reason for the high revenue, in addition to the large scale of the company, is mainly due to the fact that they are all in the bottom of the electronics industry. Imagine TSMC's IC, BOE, TCL Technology, AUO's panels, Yageo's passive components, and Lenovo and Quanta's laptops, which product has a higher unit price?
The answer, of course, is Lenovo, Quanta, and Asus laptops, because the first three are all components of laptops. This is the main reason why the electronics assembly industry has such a high revenue.
Hon Hai's operating income in 2022 is 15 trillion yuan, Huaqin Technology's revenue in 2022 is 92.6 billion yuan. (Pegatron 299.1 billion, Quanta 293.1 billion, Compal 244.1 billion, Wistron 223.9 billion, Luxshare Precision 214 billion, BYD Electronics 107.9 billion, Goertek 104.8 billion).
Simply looking at the scale of operating income, mainland manufacturers are indeed lagging behind! See the reality and catch up.
Sixth, the gross profit margin is low
The way for brands to make the most profits, in addition to raising the selling price, mainly does two things in terms of cost.
The first is to directly designate the first-class manufacturers of key components, and even negotiate the procurement of the first components, so that the final foundry can earn little or no price difference for the main components. (Before going to Su Xichang to investigate, the German Siemens company has a stable control over the products of the most important enterprises on the chain, and domestic manufacturers have almost no pricing power).
The second is to find competitors for foundries, such as Foxconn and Luxshare Precision for the assembly of Apple's mobile phones, so that the two companies restrict each other, so that the gross profit margin becomes very low.
7. Wealth management income
Some of them are good at financial electronic assembly factories and borrow low-interest funds from banks to earn interest rate differentials.
Hon Hai and Quanta have played brilliantly, with positive returns for 5 consecutive years, and the interest income of domestic manufacturer Zhonghua Qin Technology in 2022 is also okay.
8. Profitability
EPS vs. ROE
In terms of ROE, the domestic manufacturer Huaqin Technology can be regarded as a leader.
1. Operating income
Revenue is a key number for the electronics assembly industry. If the revenue falls sharply, then the data including the gross margin must not be good.
2. ROE
It is advisable to consider the gearing ratio when studying ROE. Companies with low debt ratios have more potential for EPS growth.
Attached: Valuation of listed companies in the electronic assembly industry.
The current median P/E ratio of the industry is 224 times.
Huaqin Technology (SH603296)$
FII (SH601138) $
Goertek (SZ002241) $
People live to be useful, and the usefulness of life is to constantly create value. Don't think about looking for money, as long as you create value, money will come to you.