Bromake New Material is a scarce supplier of carbon fiber structural parts for consumer electronics in China. Guided by the “in-depth customer service” strategy, the Company successfully launched carbon fiber backplate products in 2020, which received certification from Lenovo Group, breaking the exclusive monopoly of renowned Japanese material companies. Given the lightweighting trend of consumer electronics, we expect carbon fiber composite materials to be further adopted by laptops, while their adoption in foldable phones and virtual reality （VR）/mixed reality （MR） headsets may also accelerate. We are optimistic about the development of the Company’s carbon fiber business and expect the shipment of new products to rapidly ramp up in the future, which bodes well for high growth in its operating revenue and net profit. We forecast the Company’s 2023E/24E/25E EPS to be Rmb2.28/3.30/4.42. Considering the valuation levels of comparable companies, as well as the Company’s first-mover advantage and technological reserves in the field of carbon fiber structural components for consumer electronics, we assign 30x 2023E PE to derive a target price of Rmb68 and initiate coverage with a “BUY” rating.

A scarce supplier of carbon fiber structural parts for consumer electronics in China.

Established in 2012, Bromake New Material initially focused on the production of consumer electronics protection products and accumulated high-quality customer resources, such as Lenovo Group, Luxshare Precision, Goertek, etc. Guided by the “in-depth customer service” strategy, the Company began to provide functional products to Lenovo Group in 2014. Recognizing Lenovo Group’s significant demand for domestic carbon fiber backplate products in personal computer production, the Company established a carbon fiber subsidiary in 2019 and successfully launched carbon fiber backplate products in 2020, breaking the exclusive monopoly of renowned Japanese material companies. The Company’s product line capabilities continue to improve, leading to rapid growth in revenue and net profit. From 2018 to 22, the CAGR of revenue and attributable net profit （ANP） reached 19.2% and 18.4%, respectively. Looking ahead to the future, following the trend of lightweight consumer electronics, and with the commissioning of self-built production capacity for carbon fiber products and the development of new products, the Company’s high growth in revenue and net profit will likely continue.

The blue-ocean consumer electronics carbon fiber market offers ample growth opportunities for the Company.

Carbon fiber possesses numerous advantages such as low density, high strength, and high modulus. Composite materials prepared with high-quality carbon fiber raw materials and a good resin matrix exhibit excellent mechanical properties, making them the preferred material for lightweight consumer electronics. Currently, carbon fiber composite materials are being used in the top cover （A-surface） of laptops, primarily targeting the high-end market. With the gradual decrease in carbon fiber raw material prices and　　breakthroughs by companies like Bromake New Material to break the monopoly of renowned Japanese material companies, we believe that the market space of carbon fiber backplates for laptops is gradually expanding and will likely exceed Rmb6bn by 2025, with a CAGR of 75% from 2023 to 2025 based on the penetration rate of carbon fiber backplates in Lenovo. In line with the lightweighting trend, foldable phones and MR headsets are also likely to accelerate the adoption of carbon fiber materials. The Company possesses core technology in the manufacturing of carbon fiber structural components and has pioneered breaking the foreign monopoly in laptop products. Currently, the Company’s carbon fiber products are primarily used in the top covers （A-surface） of Lenovo’s high-end laptop models. With the customized R&D and design, the Company’s products will likely expand to the D-surface of laptops and other models. In addition to Lenovo, Bromake New Material is also actively acquiring new consumer electronics customers. The Company is actively developing carbon fiber products for foldable phones, which we expect to be mass-produced in the future.

Strong ties with core customers on the back of integrated services, and stable growth in protection and die-cutting businesses.

The overall landscape of consumer electronics protection and die-cutting products is becoming stable. From a longer-term industry evolution perspective, suppliers within the industry are gradually transitioning from solely manufacturing to comprehensive service manufacturing, which we expect to lead to a slow consolidation of the industry. The Company achieved sustained growth in sales revenue from Lenovo Group by leveraging is in-depth customer services and continuous enhancements of its product line capabilities. Based on our calculations, the Company’s protection products accounted for 19%, 21%, and 24% of Lenovo’s procurement in 2019, 2020, and 2021, respectively. Looking ahead, against the backdrop of a potential recovery in the consumer electronics industry, the developments of the Company’s protection and die-cutting products will likely benefit mainly from the following factors: 1） further increasing market share among major customers; 2） continuous expansion into new customer segments; 3） promoting the adoption of bamboo-plastic and marine thermoplastic products to replace expanded polystyrene （EPS）， expanded polyethylene （EPE）， and expanded polypropylene （EPP） and other traditional cushioning materials to enhance profitability.

Potential risks:

Carbon fiber product development falling short of expectations; intensified market competition; exchange rate fluctuations; slower-than-expected recovery in the consumer electronics industry; risk of customer concentration; new product and application expansion not up to expectations; slower-than-expected progress in capacity construction.

Investment strategy:

Bromake New Material is a scarce supplier of carbon fiber structural parts for consumer electronics in China. Guided by the “in-depth customer service” strategy, the Company successfully launched carbon fiber backplate products in 2020, which received certification from Lenovo Group, breaking the exclusive monopoly of renowned Japanese material companies. Given the lightweighting trend of consumer electronics, we expect carbon fiber composite materials to be further adopted by laptops, while their adoption in foldable phones and VR/MR headsets may also accelerate. We are optimistic about the development of the Company’s carbon fiber business and expect　　the shipment of new products to rapidly ramp up in the future, which bodes well for high growth in its operating revenue and net profit. We forecast the Company’s 2023E/24E/25E EPS to be Rmb2.28/3.30/4.42. We adopt the relative valuation method, with the average comps valuation at 25x 2023E PE for Lingyi iTech （002600.SZ）， Anjie Technology （002635.SZ）， Guangwei Composites （300699.SZ） and Zhongfu Shenying （688295.SH） based on Wind consensus estimates. Compared to these comparable comps, Bromake New Material has broader growth headroom and more favorable competitive edges in the consumer electronics carbon fiber market, therefore, we believe Bromake New Material deserves a valuation premium. Using the PEG valuation method, we conservatively forecast a net profit CAGR of 38% for the Company in 2023-25 to arrive at 0.8x 2023E PEG （relatively low compared to that of its comps）， corresponding to 30x 2023E PE. Combining the PE and PEG valuation methods, we assign 30x 2023E PE to derive a target price of Rmb68 and initiate coverage with a “BUY” rating.