Domestic laser leader ushered in good!

On December 9th, Ruike Laser (300747.SZ) announced that the company intends to sign a project investment agreement with the Tieshan District people's Government of Huangshi Economic and technological Development Zone to invest in the "laser intelligent manufacturing base project". The company invests in construction through self-raised funds, with a total investment of 5 billion yuan. Of which 3 billion yuan is invested in fixed assets, which is planned to be completed in two phases within seven years.

On Dec. 10, Ruike Laser's shares soared by volume, rising as much as 5.2%, closing up 2.5% in late trading and now has a market capitalization of 27.33 billion yuan.

The story of large-scale expansion of production and "domestic substitution" of lasers

Ruike laser notice shows that the project is proposed to be located in Huangshi Economic and technological Development Zone. Tieshan District, the total land area is about 404 mu, and the actual area and scope are subject to the planning red line, of which the first phase project land area is about 215 mu, and the second phase reserved land area is about 189 mu. Three factories, a power center and a gas station are expected to be completed by January 31, 2022; the first phase of the project will be put into operation before June 30, 2022; and the Huangshi project will be fully completed and effective by June 30, 2028.

The company said that the project will help to quickly promote the construction of the company's laser intelligent manufacturing base project and quickly improve the company's large-scale production capacity.

Data show that the main product of Ruike laser is the laser, and the laser is the "heart" of laser equipment, which generally accounts for 30% of the cost of laser equipment. 40%. The technical threshold is relatively high, which used to be occupied by foreign brands.

The laser industry chain belongs to the equipment manufacturing industry, which is far away from the public cognition. In fact, it is widely used in daily life.

The upstream of the laser industry is optical materials and components, and the representative companies include Lumentum, Fujing technology, Changguang Huaxin, etc.; in the middle, it is laser, representing enterprises including Reeke laser, IPG, Chuangxin laser, etc.; downstream, it is laser processing equipment, representing enterprises including big-family laser, Chinese technology and German Tong Kuai, etc.; terminals are widely used in automotive, electronics, communications, aviation, shipping and other fields.

The competitor of the company is the foreign brand represented by IPG. There is no doubt that this expansion of production capacity is to continue to increase market share and continue to achieve "domestic substitution" in the laser field.

The Battle of Changjin Lake in the bloody War of Foreign Investment

However, the story of domestic substitution in this field is not easy to tell.

Due to the technical difficulty of the laser, the industry was once highly monopolized, and the world's leading American company, IPG, also enjoys high profitability, with a gross profit margin of 50%, 60% and a net profit margin of 20%, 30%, which is even higher than that of Apple Inc. And IPG makes a lot of money, basically relying on the Chinese market.

In quite a long period of time, IPG holds the pricing power and pricing mode of domestic mainstream fiber laser products. They define laser products and prices based on the power of the laser. Domestic laser manufacturers used to be followers of IPG.

In 2018, Ruike Laser officially landed on the gem, establishing its leading position in the domestic laser industry, breaking the technology monopoly by foreign brands, and also breaking the market price and competition pattern of the laser industry. For a time, with the rise of many domestic laser brands, more and more enterprises have entered the market.

As a result, the mainstream companies in the market fired the first shot in the price war, and then other laser manufacturers fully followed. The price war in the industry began, intensified and continues to this day. Laser products, as the core light source, should have developed technology to catch up with foreign countries, but they have been caught in a deep price war, and the selling price of science and technology products is comparable to the "cabbage price".

According to the data, with the listing of Ruike Laser, from the third quarter of 2018 to the end of 2019, the single-quarter gross profit margin of Ruike Laser fell from 49.37% to 21.28%. According to market participants, "product pricing is close to the bottom line of competitors."

At the same time, IPG is also having a hard time. Data show that the income share of IPG in China has been declining year by year since 2017, and it is even more obvious in 2019. Profitability began to dive, and net interest rates plummeted by 14 points in a year.

Through a bloody price war, Ruike Laser's market share has risen rapidly, reaching 17.8% in 2018 and 24.3% in 2019, thanks to a rapid squeeze into the cake of IPG, an American company.

Some organizations believe that Ruike Laser has technical advantages and cost advantages, and there is more room for cost reduction in the follow-up, and the price war will help the company to accelerate the process of domestic substitution.

However, some institutions have expressed concern that the price war has led to the increase of Ruike Laser's income without increasing profits, affecting the long-term R & D investment, a vicious circle, and it is difficult to continue to serve customers. The laser equipment industry is different from the Internet industry. Low-price impulse will not get "customer stickiness". In the long run, it will "kill 1000 enemies and self-harm 800", which is not conducive to long-term competitiveness.

Can profitability usher in an inflection point?

Judging from the gross margin trend in the chart above, the worst of the "price war" has passed since 2020, and Ruike Laser's profitability has improved.

In terms of profits, on October 26th, Ruike Laser released its three-quarter report of 2021, with revenue of 2.507 billion yuan in the first three quarters, an increase of 74.98% over the same period last year, and net profit of 401 million yuan, an increase of 123.21% over the same period last year.

On the one hand, the growth in performance comes from the high demeanor of the downstream manufacturing industry, including the need for laser equipment in areas such as new energy; on the other hand, the company is also developing non-standard business such as laser welding, which fundamentally avoids the price competition of previous products, and the overall competition will tend to ease.

From the market trend, Ruike Laser since November 2020, the trend has gradually become stronger, began to break through the previous shock range, Dongfanghong and other institutions have also begun to enter the list of the top ten shareholders in circulation.

This may indicate that Ruike Laser's long-term fundamental inflection point has quietly arrived.

Conclusion--

Ruike Laser is the leading domestic laser company. In the early stage, because of the price war and other factors, the company's profitability was suppressed, but the company's market share is increasing rapidly, and the market share of foreign traditional giants such as IPG has declined significantly.

The 5 billion yuan production expansion is expected to further consolidate the company's market share, and the domestic substitution of the technology industry is also expected to be staged again in the laser equipment industry.