As the leader of aluminum electrolytic capacitors in China, Jianghai has gradually built a diversified presence to achieve large-scale mass production and stable shipments in the three fields of aluminum electrolytic capacitors, thin film capacitors and supercapacitors. It boasts rich product categories with international competitiveness, covering multiple downstream fields such as electric vehicles (EVs), wind and solar energy storage, and servers. Benefiting from the trend of import substitution and the development of emerging industries, Jianghai offers broad prospects in both existing and incremental markets. We estimate that the Company's revenue will reach Rmb5,370mn/6,750mn/8,356mn and its attributable net profit (ANP) will reach Rmb801mn/1,015mn/1,328mn in 2023E-25E, respectively. We assign 22x 2024E PE to derive a target price of Rmb26 and initiate coverage with a "BUY" rating.

A veteran aluminum electrolytic capacitor leader with extensive product line coverage.

Jianghai is a leading aluminum electrolytic capacitor enterprise in China. The Company has an extensive presence along the value chain and has become one of the few enterprises in the world that simultaneously cover aluminum electrolytic capacitors, thin film capacitors and supercapacitors. The technical performance and production and sales volume of its industrial capacitors are among the best in the industry. In 2022, the Company's revenue and ANP came in at Rmb4.52bn and Rmb661mn, respectively, an increase of 27.4% YoY and 52.0% YoY. With the gradual emergence of the scale effect and its improving self-sufficiency in upstream raw materials, we expect the Company's profitability to be further strengthened in the future. At present, the Company's client base covers many first-tier brands in their respective segments, and it has continued to develop in the direction of key parts required in industrial automation and high-growth segments like EVs, charging piles, wind and solar energy storage, servers, etc.

With high-power capacitors leading the demand, the capacitor market will continue to expand.

Capacitors can play the roles of energy storage, filtering, tuning, bypass and coupling in the power supply circuit and therefore feature diverse forms and a wide range of uses. The Qianzhan Industrial Research Institute estimates that China's capacitor market was worth about Rmb116bn in 2020, and new energy vehicles or NEVs (engine control units or ECUs/inverters), charging piles (modules), wind and solar energy storage (inverters), and servers (central processing units or CPUs/graphics processing units or GPUs) are the main emerging downstream growth drivers of the capacitor industry. In terms of photovoltaics (PV), thin film capacitors can play a role in filtering, buffering, and interference suppression. In terms of automotive capacitors, ECUs and others can help boost the demand for aluminum electrolytic capacitors, while thin film capacitors are mainly used in vehicle inverters. In terms of charging piles, aluminum electrolytic capacitors are widely used for their capacity advantages. In recent years, the emergence of high-power (high-voltage fast　　charging) and high-stability (new servers) scenarios has brought broad development prospects for capacitors.

Excellent cost control bodes well for a rise in volume and price for legacy products.

For aluminum electrolytic capacitors, the electrode foil accounts for 60-70% of the cost. The Company has been extending along the value chain for an integrated presence, and its overall electrode foil self-sufficiency ratio has reached 75%, which improves its competitive edge at the cost end on top of achieving raw material supply independence. In addition, the Company has been promoting continuous cost optimization at the core material/electricity price end, driving its gross profit margin (GPM) to continue to improve.

Continue to expand new products and rebuild a Jianghai.

We see strong growth in the Company's downstream applications in new energy, with seven of the world's top 10 PV inverter manufacturers already added to its client base. We estimate its revenue from energy storage/NEVs accounts for 40%/10% of the total, respectively. Jianghai's film capacitor business has seen both organic growth and growth driven by M&As and has continued to win bids for projects from multiple automobile brands and electric drive manufacturers, and the production capacity will reach 1mn after the project funded by its private placement is completed. Jianghai's multilayer polymer capacitor (MLPC) products, which can adapt to the low voltage and high current environment of server power supplies, have been supplied to multiple server manufacturers in bulk and will continue to benefit from the increased demand from big data centers in the future.

Potential risks: Raw material price hikes exceed expectations; new energy demand is lower than expected; industrial control demand misses expectations; industry competition intensifies; the Company's capacity expansion falls short of expectations; the Company's customer expansion fails expectations.

Investment recommendation: After years of accumulation in the R&D, production and sales of various capacity products, Jianghai has grown into the leader of aluminum electrolytic capacitors in China and has gradually built a diversified presence to achieve large-scale mass production and stable shipments in the three fields of aluminum electrolytic capacitors, thin film capacitors and supercapacitors. It boasts rich product categories with international competitiveness and covers multiple downstream fields. Benefiting from the trend of import substitution and the development of emerging industries, Jianghai offers broad prospects in both existing and incremental markets. We forecast 2023E-25E revenue of Rmb5,370mn/6,750mn/8,356mn and ANP of Rmb801mn/1,015mn/1,328mn, respectively. In terms of valuation, we choose Aihua Group (603989.SH), Faratronic (600563.SH), Tongfeng Electronics (600237.SH), and Three-Circle (300408.SZ), which have the capacitor business in the A-share market, as comparable companies. Based on the average valuation of 22x 2024E PE and 1.1x PEG based on Wind consensus estimates for comparable peers and considering the Company's extensive product line coverage and strong competitiveness in the field of new energy, as well as the rapid development of new energy and the high growth of thin film capacitors and supercapacitors, we assign 22x 2024E PE (corresponding to 1.1x 2024E PEG) to derive a target price of Rmb26 and initiate coverage with a "BUY" rating.