Dongwu Securities: Upgraded Xinrui Co., Ltd. to an overweight rating

Soochow Securities Co., Ltd. Zhou Ershuang, Qian Yaotian, Tao Ze recently conducted research on Xinyu Co., Ltd. and published the research report “Tungsten Price Rise Releases Profit Flexibility in Main Business, Mergers and Acquisitions of Drill Needle Assets Enter the PCB Track,” giving Xinyu Co., Ltd. an overweight rating.

Xinyu Co., Ltd. (688257)

Investment Highlights

Event: Xinyu Co., Ltd. plans to acquire a 70% stake in Huilian Electronics

On the evening of February 11, Xinyu Co., Ltd. announced that on February 11, the company signed a framework agreement with Xinxiang Huilian Electronic Technology Co., Ltd. (referred to as “Huilian Electronics”) and the main shareholders of Huilian Electronics, Shenzhen Jiurixu Investment Management Co., Ltd., Xu Meihua, and Li Lingxiang (major shareholders). The company intends to use no more than 700 million yuan to acquire a 70% stake in Huilian Electronics held by its main shareholders, gaining control.

Huilian Electronics is the fourth-largest PCB tooling company in China. This acquisition will further improve Xinyu Co., Ltd.'s layout in the hard alloy field and has strong synergistic effects.

Huilian Electronics: Leader in the PCB Tooling Segment

As a national-level specialized and innovative “Little Giant” enterprise, Huilian Electronics focuses on the PCB tooling field and possesses strong competitiveness in this niche market. The company’s comprehensive strength ranks fourth domestically, mainly producing PCB milling cutters and drill needles, with an annual capacity of up to 200 million units. Among them, the milling cutter business has high technical barriers, with production and sales ranking first globally, establishing a leading position in the global niche market. Financially, the company is expected to achieve revenue of 330 million yuan and net profit of 39 million yuan in 2025. The valuation for this acquisition is at 25 times, reflecting recognition of its technological advantages and growth potential.

Tungsten Price Rise Drives Product Price Increases, Low-Price Inventory Locks in Excess Returns

Driven by the continuous increase in tungsten prices, the company’s product prices have risen significantly. As a core raw material for hard alloys, tungsten prices have soared from 300-400 yuan/kg in Q1 2025 to the current 1,400-1,500 yuan/kg. Since the third quarter of last year, tooling companies have frequently issued price increase notices, with high-end products experiencing particularly notable price hikes due to higher technical barriers.

Meanwhile, the company has effectively locked in low-cost raw materials by stockpiling in advance and signing long-term agreements with mining companies. This has allowed the company to significantly increase selling prices without changing costs, thereby fully releasing profit margins.

Profit Forecast and Investment Rating: Currently, tungsten prices remain high. The company’s profit flexibility is significantly released thanks to low-cost inventory dividends and product price increases; at the same time, acquiring Huilian Electronics allows entry into the PCB tooling segment, which is expected to leverage its global milling cutter leadership to achieve business synergy and performance growth. We have raised the company’s net profit attributable to parent for 2025-2027 to 213 million yuan (previously 198 million), 408 million yuan (previously 248 million), and 501 million yuan (previously 305 million), respectively. The current stock price corresponds to forward PE ratios of 65/34/28 times, maintaining an “Overweight” rating.

Risk Tips: Raw material cost fluctuations, AI computing power development below expectations, macroeconomic risks.

The latest profit forecasts are detailed as follows:

The above content is compiled from public information by Securities Star, generated by AI algorithms (Wangxin Algorithm Backup 310104345710301240019), and does not constitute investment advice.