先导智能:Conf call takeaways:Overseas saw some order delays;more positive on domestic

On March 17, we hosted a conference call with Board secretary Mr. Li Yufeng todiscuss how the COVID-19pandemic has and will impact the company’s operations.Our key takeaways are below:

(1) Overseas orders have seen some delay:

Europe:

Northvolt (Sweden/Germany plants) orders did see some delay. The Swedish nfactory’s mid-stage equipment order was received at end-2019, but late-stageequipment orders were expected to kick in during Feb-March and are nowdelayed (likely to April-May) because Lead Intelligent’s staff cannot traveloverseas to finalise the details of the contract.CATL (Germany plant) orders have seen no impact, as equipment assembly and ntesting is happening in domestic China plus actual shipment will take place in2021E, with on-site assembly and testing in mid-2021.US:

3C inspection equipment orders are more negatively affected; they may be ndelayed for 1-3months and there is relatively high uncertainty going forward, inthe company’s view.Tesla’s potential battery equipment order has been uncertain and has never been nincluded in company guidance.

(2) Move positive on domestic orders:

Despite the EV sales slide in Jan-Feb, Lead Intelligent remains optimistic aboutdomestic demand because of 1) potential policy support and 2) battery equipmentorders already improving in 1Q20(1Q20orders already exceeded half of the totalorders received in 2019and are expected to reach Rmb3bn) and expected to see afurther uptick in 2H20, given a) potentially more detailed battery capacity expansiontimetable from its biggest customer, CATL, and b) new entrants, eg. Litian Wanshi,whose LFP battery factory in Zhejiang Jiaxing started construction on March 3, 2020with 1st Phase capacity of 8GWh and 20GWh long run capacity.Overall, the company’s order guidance of Rmb8-10bn in 2020remainsunchanged, considering the several moving parts (overseas delay but possiblynew customers in domestic China).

(3) Shifting to 100% domestic component procurement:

In light of the pandemic’s potential disruption to supply chain, Lead Intelligent is workingon 100% domestic substitution of the components required for battery equipment (froma high local procurement ratio as of 2019), which will allow the company to effectivelyminimize the potential shock to supply chain.

(4) To control the number of employees instead of salaries:

Given last year’s heavy investment into R&D, the company will not further expand itsR&D team and will maintain the current salaries for R&D staff.Valuation and risksOur 12-month TP is unchanged at Rmb50.10and still based on 2020E-21E avg. EV/GCIvs CROCI/WACC (cash return multiple 2.3x) with 0% premium. Maintain Buy.Key risks:

(1) Significant pullback of EV development in China and globally;

(2) marginpressure from major customers;

(3) technology disruptions should the company not beable to capture the rising new battery technology trend;

(4) order cancellations/cashcollection and working capital pressure.