As the domestic leader in powder materials, Yuean Advanced Materials leads both in carbonyl iron powder materials and atomizing alloy powder materials and offers downstream deep processing products, including soft magnetic powder, metal injection molding (MIM) feedstocks, absorbing materials, etc. We believe that driven by the downstream folding screen and high-power markets, the Company's various businesses will achieve rapid growth amid the rapid development of new energy vehicle (NEV) high-voltage fast charging scenarios, artificial intelligence (AI) servers and other industries. We are optimistic about the Company's long-term growth prospects. By assigning 35x 2024E PE to derive a target price of Rmb56, we initiate coverage with a "BUY" rating.

Focusing on power materials for 20 years, the Company has witnessed a structural surge in downstream demand.

Yuean Advanced Materials was founded in 2004, focusing on new metal powder materials, with products covering two major ultrafine metal powders: carbonyl iron powder, atomized alloy powder and corresponding downstream soft magnetic powder, MIM feedstocks, absorbing materials, 3D printing materials and other deep processing products. Its products have been widely used in consumer electronics (folding screens), automotives (automotive electronics, electromagnetic suspension, soft magnetic motors), military (absorbing materials) and other high-end downstream application scenarios.

Powder materials: Carbonyl iron powder has gained a market share of more than 40%, and cost reduction and efficiency enhancement has driven growth in both prices and shipment.

Compared with precious metal powder, the Company's core business of carbonyl iron powder has a good structure, electromagnetic performance, and wear resistance, and a wider distribution of resources, offering good value for money. According to the Company announcement, the current domestic carbonyl iron powder production capacity accounts for about 40% of the global production capacity, and the Company's domestic market share has exceeded 40%, with existing production capacity at 5ktpa. In addition, its project of 6ktpa production capacity has been under construction, and we expect that its market share will expand further after the completion of the investment project, continuously carrying out global import substitution. In terms of profitability, the gross profit margin (GPM) of carbonyl iron powder of the Company has remained at 45%+ over the past three years, with strong profitability. Looking ahead, the Company will continue to improve its profitability by introducing iron slag and other process upgrades. 　　Downstream highlights 1: Folding screen leads a surge in MIM material demand, with a focus on the progress of customer introduction.

MIM is one of the most promising manufacturing technologies. It has natural advantages in miniaturization, customization, mass production, etc. We expect it to first benefit from the exponential growth in the foldable screen mobile phone market, and then continue to benefit from the increase in the demand for high-complexity parts in military, medical, automotive and other　fields. The Company has developed a series of special powder materials with high foldability to meet the application needs along the foldable screen mobile phone value chain. At present, it has been working with several foldable screen mobile phone terminals to carry out verification, capacity ramp-up and other work, and its downstream customers include well-known application and production enterprises such as Gian Technology and Samsung Electro-Mechanics.

Downstream highlights 2: Soft magnetic materials embrace new opportunities as the era of high power dawns.

NEVs, photovoltaic (PV), and server application scenarios gradually expand to the high-frequency and high-power territory, including high-power charging piles, high-voltage fast charging models, AI servers and other needs for structural upgrades that will bring new growth points for all kinds of high-power materials. Metal and alloy soft magnetic materials have a better performance at medium and high frequency, which may lead the demand for the Company's carbonyl iron powder and alloy powder to embrace changes. In addition, soft magnetic motors, electromagnetic suspension and other innovative applications will also bring new growth points for the Company.

Potential risks: Intensified industry competition; projects funded by initial public offering (IPO) proceeds failing to progress as expected; sharp fluctuations in raw material prices; the recovery of consumer electronics failing expectations; the expansion of new customers not up to expectations.

Investment recommendation: The Company is the leading carbonyl iron powder and atomized alloy powder enterprise in China, which offers downstream deep processing products, including soft magnetic powder, MIM feedstocks, absorbing materials, etc. As downstream industries, including NEVs, PV and servers, expand to high-frequency and high-power application scenarios, coupled with foldable screen mobile phones hurtling into a period of rapid development, the Company has witnessed significant growth. We forecast its 2023E/24E/25E EPS of Rmb1.11/1.61/2.26. We take the comps valuation as a reference, with POCO Holding (300811.SZ), Boqian New Materials (605376.SH), and NBTM New Materials (600114.SH) trading at 31x 2024E PE and 0.6x 2024E PEG on average based on Wind consensus estimates. By combining both PE and PEG valuations, we assign 35x 2024E PE to derive a target price of Rmb56 and initiate coverage with a "BUY" rating.