As we have expected, share price of Times Electric has been under correction over the last few weeks. The US imposed restrictions on exports to China’s semi-conductor industry, leading to a significant correction recently. Despite the short-term negative impacts, export restrictions may boost the development of domestic leaders in the long run. In addition, the company’s current valuation is well supported by the traditional products, the hauling systems for EMU (Electric Multiple Units) and locomotive. The construction process of railway project has speeded up, thus stabilising the demand for EMU and locomotive. It could be a good time to accumulate Times Electric as the stock is only trading at 18.4x 22E P/E. Retain BUY rating.
　　Key Factors for Rating
　　Times Electric’s share price has been under correction over the last few weeks, creating the opportunity for accumulation. The correction was mainly caused by the de-rating of EV value chain and policy risk from the US’s restrictions on exports to China’s semi-conductor industry. The robust demand for IGBT from the EV value chain, as well as the market leader position in IGBT segment are the two major reasons that enable Times Electric to trade at a premium over other industry peers. Though we cannot conclude there is no negative impacts on Times Electric in the short term, we believe the domestic substitution trend of semi-conductor products would drive Times Electric to long-term success.
　　Compared to other peers, Times Electric acquired a controlling interest in Dynex, a UK-based global second-tier brand of semi-conductor products, which Times Electric can leverage on. Recently, Times Electric has announced to expand the production capacity of the mid- and low-power semi-conductor products with an investment of around RMB11.12bn. The high-power semi-conductor could be applied to the EMU and locomotive, while the lower-power ones could be used for other applications like home appliance and auto. The expansion plan covers a full power range, helping the company satisfy the needs of various end- applications.
　　The valuation can still be well supported by the traditional hauling system for EMU or locomotive. To help support the economy, new railway projects have been kicked off as much as possible, thus stabilising the demand for EMU and locomotive. The stable demand will support the valuation.
　　Key Risks for Rating
　　Policy risk that the U.S. may require more countries to follow its restrictions on exports to China’s semi-conduct industry.
　　Valuation
　　Times Electric trades at 18.4x 22E P/E after the recent share price correction.
　　The valuation is attractive for accumulation. We retain a BUY rating.