With the development of large models, AI mobile phones are becoming a new development direction.
At present, Apple, Huawei, Xiaomi, Honor and other mobile phone manufacturers have successively launched AI mobile phones equipped with large models, and it is expected that by 2026, nearly 50% of terminal equipment processors in the Chinese market will have AI technology.
As the model specifications of AI mobile phones continue to improve, the release of NPU performance may become more aggressive, and the heat dissipation requirements for mobile phones are getting higher and higher.
At present, the typical heat dissipation system is mainly divided into three parts: thermal interface heat transfer, vapor chamber heat transfer (VC) and graphite film heat dissipation (graphene thermal conductive film/artificial graphite heat dissipation film), and the more commonly used scheme is "graphite + VC".
However, under the premise that mobile phones have strict volume restrictions, it is difficult to apply active heat dissipation solutions such as air cooling and water cooling on a large scale, which requires manufacturers to further improve materials and dosage on the basis of the current passive solutions.
This will further increase the use of heat dissipation materials and increase the penetration of new materials, and the global heat dissipation materials market size is expected to reach $13.98 billion by 2028.
So what kind of heat dissipation materials do AI mobile phones need?
The answer is graphene films.
Compared with artificial graphite heat dissipation film, graphene film has superior heat dissipation performance, with a theoretical thermal conductivity of 5300W/(m.K), which is more than 165% higher than that of artificial graphite heat dissipation film.
However, graphene film is about 3 times more expensive than artificial graphite heat dissipation film in price, and the market share of graphene in 2020 is only 12%.
However, with the advent of the era of 5G mobile phones, graphene has been used by leading manufacturers.
For example, Apple's iPhone 14 and 15 Pro series use a large number of graphene films for heat dissipation, Huawei Mate60 Pro uses a large area of VC and graphene oxide heat dissipation materials to achieve the upgrade of heat dissipation solutions, and Xiaomi 14 series mobile phones have also used multi-layer graphene films as heat dissipation materials.
With the continuous improvement of graphene permeability, according to estimates, the usable area of graphene heat dissipation film for mobile phones will increase from 100cm²/part in 2020 to 200cm²/part in 2025.
Referring to the shipment price of graphene of Fuene Technology and assuming a price reduction of 10% per year, the price of graphene will drop to 183 yuan/square meter by 2025, and the value of graphene is expected to rise to 3.67 yuan/unit by then.
What kind of investment opportunities are there under the broad market space?
Due to the late entry of domestic manufacturers into the heat dissipation material market, about 80% of the current heat dissipation material market share is monopolized by overseas manufacturers.
Among the domestic manufacturers, Zhongshi Technology won the first place with a market share of 7.2%, in addition, Feirongda, Carbon Yuan Technology, and Siquan New Materials also have strong competitiveness.
The reason why Zhongshi Technology can become the leader of heat dissipation materials in China today is due to the following three factors.
1. The whole industry chain and technology build gross profit margin advantages
Sinostone Technology has a fully automated control production line from the preparation of graphene slurry to the continuous production of coating, and the production capacity can reach 900,000 square meters/month, ranking first in the world, with significant scale advantages.
In 2024, the company will start a new round of expansion of production, and it is expected that the 5G high-efficiency heat dissipation module construction project and the Zhongshi (Thailand) precision manufacturing project will create profits of 262 million yuan and 158 million yuan per year respectively after reaching production.
In addition, the company has formed high barriers in the fields of high-temperature carbon material sintering technology, functional polymer composite technology, and two-phase heat transfer technology, which has improved the added value of products.
The advantages of production and technical barriers in the whole industry chain make the gross profit margin performance of Zhongshi Technology better than that of other companies in the same industry, and in the first quarter of 2024, the company's gross profit margin will reach 30.47%.
2. Diversified development of income structure
The company's thermal conductive materials business accounts for more than 90%, but in recent years, the company has also developed EMI shielding materials for automotive electronics and communications, as well as sealing materials and adhesives for clean energy.
Among them, the company's EMI shielding material products have obtained the qualification of Huawei communication materials supplier, and the product will achieve a profit of 11.2 million yuan in 2023.
With the continuous acceleration of technology iteration in the communication and automotive electronics industries, the demand for shielding materials has also benefited from the increasing trend of localization substitution, and the company's shielding materials business revenue is expected to further increase.
3. Deeply bind the head customers of the 3C industry
Since 2021, Zhongshi Technology has become Apple's largest supplier of heat dissipation materials, accounting for more than 80% of the market.
In addition, Samsung, Microsoft, Google, Huawei, Honor, Xiaomi, OPPO, DJI and other major consumer electronics brands at home and abroad are the company's customers, such as Huawei Mate60\P70 heat dissipation materials are provided by Zhongshi Technology.
Next, let's calculate the value of Zhongshi Technology on Apple's AI mobile phone.
It is estimated that by 2026, the global shipment of AI mobile phones will reach 413 million units, assuming that the price of graphene materials is twice that of ordinary heat dissipation materials by then, that is, 24 yuan, then by 2026, the global AI mobile phone heat dissipation material market size will reach 9.92 billion yuan.
It is conservatively estimated that Apple's shipments can account for 20%, and according to the calculation of Zhongshi Technology's 80% share of Apple, by 2026, the value of Zhongshi Technology on Apple's AI mobile phone alone will reach 1.587 billion yuan, and the profit margin is very broad.
In addition to Zhongshi Technology, Siquan New Materials has also become Apple's supplier of heat dissipation materials, but the proportion is only 2 to 3 percent, and Zhongshi Technology's position in Apple's supply chain is still stable.
In addition, there are many partners of Zhongshi Technology, and the business risk of relying on a single large customer has been reduced.
Finally, let's take a look at the operation of Zhongshi Technology in financial data.
In the first quarter of 2024, affected by the recovery of the consumer electronics industry, the net profit of Zhongshi Technology increased by 42.16% year-on-year to 30 million yuan, and it is expected that with the rapid development of AI mobile phones, AI PCs and optical modules, the company's revenue is expected to continue to recover.
From the perspective of the net present ratio, the ability of Zhongshi Technology's net profit to be converted into cash flow is increasing year by year, and the company's net cash ratio will reach 257.18% in 2023, and the change is relatively stable, indicating that the company's operating situation is relatively stable.
As of the end of 2023, the company's interest-bearing debt ratio is only 0.55%, which is much higher than that of other companies in the industry.
In addition, the company also attaches great importance to the return to shareholders, and the company's total dividend will reach 71.75 million yuan in 2023, and the dividend payment rate will reach 97.29%, which is much higher than that of Feirongda and Siquan New Materials.
The company's operating strength has also attracted the scramble of the social security fund, and in the first quarter of 2024, the social security will increase its position by 1.9385 million shares, about 31.3 million yuan.
To sum up, with the rise of AI mobile phones and AIPC, the demand for heat dissipation materials for high-performance consumer electronics products will become increasingly strong, and the current supply of the global heat dissipation materials market is dominated by foreign manufacturers, accounting for nearly 80%.
However, a number of outstanding enterprises have also emerged in China, among which Zhongshi Technology is a well-deserved boss, winning 80% of Apple's orders for heat dissipation materials, and also deeply binding Huawei, Xiaomi and other domestic head manufacturers, with great room for future development.
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Source: Flying Whale Investment Research