Riding the wave of the consumer electronics boom, titanium alloy giant Tiangong Corporation is about to land on the North Exchange.

To ensure the quality of listed companies and protect the legitimate rights and interests of investors, the North Exchange has implemented a strict audit process. Thanks to this mechanism, the quality of listed companies on the North Exchange is generally high. According to Wind data, as of August 27, the North Exchange has welcomed 250 listed companies. Among these companies, 132 have released their mid-year performance reports for 2024, with 87 reporting an increase in operating income, 65 companies showing an increase in net profit attributable to the parent company, and 116 companies achieving positive net profit attributable to the parent company. In addition, since its establishment, the North Exchange has attracted many outstanding enterprises to join its list of listed companies, including but not limited to well-known brands such as JINBO, NAKNOR, GROUNDSUN, and CHANGHONG ENERGY. The North Exchange is committed to providing professional services and support for "specialized, refined, and innovative" small and medium-sized enterprises. Looking ahead, it is expected that more high-growth companies will join the North Exchange, such as the upcoming listing of Tiangong Company. Fruitful performance, consistent growth It is understood that Tiangong Company is a subsidiary of the Hong Kong-listed company TIANGONG INT'L (00826), mainly engaged in the research, development, production, and sales of titanium and titanium alloy materials. By proportioning, smelting, forging, and various precision processing techniques, the company produces products that maximize the technical performance of titanium and titanium alloy materials. The company is a national-level specialized, refined, and innovative "little giant" enterprise and a high-tech enterprise. As of December 31, 2023, the company has obtained 59 patents, including 9 invention patents, helping the company maintain a leading market position in high-end product manufacturing and cost control. Titanium and titanium alloy materials were originally used in the aerospace and military industries due to their excellent performance. With advancing technology, they have gradually entered the civilian market. Titanium products such as plates, pipes, wires, and various metal composite materials are widely used in consumer electronics, medical, sports, and other daily consumer goods sectors. Tiangong's titanium and titanium alloy products are transitioning from rough processing to precision processing, including titanium alloy wires in the consumer electronics industry and the 3D printing field, opening up broader emerging markets. Thanks to the rise of consumer electronics in recent years, Tiangong's performance has also seen rapid development. The prospectus shows that from 2021 to 2023, the company's operating income was RMB 283 million, RMB 383 million, and RMB 1.035 billion, with year-on-year growth rates of 55.23%, 35.65%, and 170.05%, respectively. During the same period, the net profit attributable to the parent company was RMB 20.343 million, RMB 70.307 million, and RMB 170 million, with year-on-year growth rates of 67.87%, 244%, and 142.57%, respectively. By the first half of 2024, the company achieved operating income of RMB 407 million and net profit attributable to the parent company of RMB 104 million. The significant increase in revenue and profit is mainly due to the substantial increase in the proportion of the company's core technology product line wires. According to the prospectus, wire product revenue increased from RMB 40.21 million in 2021 to RMB 880 million in 2023, with the proportion rising from 15.28% to 91.12%. It is worth noting that, while revenue and profit have increased significantly, Tiangong has also seen a considerable increase in sales to its largest customer. According to the prospectus, in 2022, Tiangong sold RMB 106.8632 million to Changzhou Solomon (referred to as Solomon below), accounting for 27.88% of the revenue share and becoming the company's largest customer. In 2023, the cooperation between the company and Solomon further expanded, achieving sales revenue of RMB 863.8397 million, accounting for 83.45% of the total revenue. A high proportion of the first largest customer often represents a strong position in the industry. According to Tianyancheck, Solomon, established in 2020, is mainly engaged in the smelting and rolling processing of non-ferrous metals, with Xiamen Molifeng Development Co., Ltd. as its major shareholder, holding a stake of 64.93%. In 2022, Solomon was included in the Apple supply chain. Thanks to this, the company achieved sales of RMB 2.3 billion in 2023, with tax revenue of RMB 190 million, winning awards such as the Significant Contribution Award in 2023, the Industrial Five-Star Enterprise, the Top 100 Tax-paying Enterprise Award, and the Industrial Output Per Mu Award. Since the beginning of 2024, leaders of Changzhou have visited Solomon twice, indicating its considerable strength. It is worth mentioning that Shenzhen Molifeng Technology Co., Ltd. (referred to as Molifeng Technology) and Guangzhou Zhongshan Precision Technology Co., Ltd. (referred to as Zhongshan Precision) have major shareholders being Xiamen Molifeng Development Co., Ltd. Molifeng Technology was included in the Apple supply chain in 2022, while Zhongshan Precision was incorporated into the Apple supply chain in 2020. It is understood that Zhongshan Precision is a company focused on the research and production of high-precision stainless steel profiles, special-performance titanium, aluminum, magnesium, and other alloy materials, as well as multi-metal layered composite materials. It has become a core research and development innovation manufacturer serving top brands in the global consumer electronics industry, including companies like Company A, Company S, and Xiaomi. In the first half of this year, it received strategic investments from Xiaomi Group and SAIC. Additionally, as an associate company of Solomon, Zhongshan Precision has close business dealings and financial settlements with Solomon, so the significant increase in demand for Tiangong's products by Solomon and Zhongshan Precision after Apple adopted titanium alloys is not surprising. From the above analysis, it is not difficult to see that Tiangong's largest customer is strong. This deep cooperation is highly favorable for Tiangong's long-term stable development. With smartphone manufacturers increasingly using titanium alloys, the penetration rate of titanium alloys in the market is expected to gradually increase. This not only indicates that Tiangong's market share is expected to grow but also consolidates and enhances its leading position in the industry. Consumer electronics continue to improve, and Tiangong's performance is expected to achieve high growth Since the beginning of this year, consumer electronics, especially smartphones, have seen continuous growth in sales for three consecutive quarters. With the continuous growth of consumer electronics, Tiangong's performance is also expected to further achieve a trend of high growth. According to IDC dataIn the first quarter of 2024, global smartphone shipments reached 289 million units, a year-on-year increase of 7.78%. According to the latest report published by Counterpoint Research, global smartphone shipments in the second quarter of 2024 were 289.1 million units, an 8% increase year-on-year, achieving growth for three consecutive quarters.The China Academy of Information and Communications Technology (CAICT) released a report on the operation of the domestic mobile phone market in June 2024. The data shows that in June 2024, the domestic mobile phone market demonstrated strong growth momentum, with a total shipment volume of 24.91 million units, a significant increase of 12.5% compared to the same period last year. In the first half of the year, the cumulative shipment volume of smartphones reached 139 million units, an 11.6% year-on-year increase, accounting for 94.7% of the total shipment volume in the first half of the year. In terms of the price range of smartphones, the proportion of high-end smartphones is gradually increasing, from 13% in 2023Q2 to 15% in 2024Q2. The advantages of titanium alloy are its lightweight, making lightweighting a new strategic direction for mobile phone development. As mobile devices become more functional (e.g., PRO weighing 200g) and have features such as foldable large screens (weighing between 260-300g), they may face issues with increased weight. Weight and functionality show a negative correlation, which titanium alloy perfectly solves. The weight of the iPhone 15Pro has decreased by 10% compared to the iPhone 14Pro, with 3D printing being an important, even necessary, technology for processing titanium alloy. Currently, titanium alloy products are used in the frame of the iPhone 15Pro, Apple Watch Ultra 2, Huawei Watch GT3/4 strap, Honor Magic V2 hinge, Xiaomi 14Pro/Ultra frame, and Honor flagship Magic 6 frame, among others. It is expected that the Huawei Mate 70Pro frame will also use titanium alloy. The pricing of smartphones using titanium alloy is currently around 5000 yuan, with the possibility of further price reductions for application models. With the increase in the proportion of high-end phones and the decrease in prices of models using titanium alloy, the market space for titanium alloy continues to grow. According to data from the internationally renowned market research firm, ReportLinker, the global titanium market has grown at a compound annual growth rate of approximately 5% over the past five years, with the market size expected to reach approximately $6.6 billion by the end of 2026. The smartphone market is one important area for titanium alloy applications. According to Huaxi's calculations, the amount of titanium alloy used in smartphone frames is expected to reach 15,000 tons by 2025, with a market size exceeding 30 billion yuan. In addition to the fastest-growing titanium alloy smartphone frames, the penetration of titanium alloy materials in the consumer electronics field, such as smart wearable devices and foldable screen hinges, is also accelerating. Guosheng Securities stated that in terms of smart wearables, Apple was the first to use titanium alloy in the Apple Watch Series 6 Edition, which continued until the Apple Watch Ultra 2 in 2023, with a current penetration rate of approximately 10%. Samsung, Huawei, and others have quickly followed suit by introducing smartwatches with titanium metal casings. As for foldable screen hinges, foldable screen smartphones are at a stage of explosive growth, with a current penetration rate of only 1%. The hinge is an important component of foldable screen smartphones, with the global foldable screen smartphone hinge market expected to reach 33.3 billion yuan by 2027, and a five-year compound annual growth rate of 37% from 2022 to 2027. Currently, the Honor Magic V2 and Honor Magic Vs2 have led the way in using 3D-printed titanium alloy for hinge axle covers, significantly improving the strength and reliability of the hinges, further expanding the application of titanium alloy and 3D printing in the consumer electronics field. In this wave of industrial development, Tiangong Corporation, as a leading company in the application of titanium alloy in the consumer electronics field, is expected to continue to benefit from the industry's growth. In the current Chinese titanium industry market, the competition is fierce among medium and low-end products due to product homogenization, but the production capacity of high-end products is clearly insufficient. There is significant room for improvement in the market supply-demand structure, and the industry is expected to further concentrate on high-end products. The successful commissioning of Tiangong Corporation's EB furnace not only enriches its high-quality titanium and titanium alloy production processes but also pushes quality control and product value to new heights. According to the prospectus, as of 2023, Tiangong Corporation's EB furnace project has been completed by 62.44%, and with its listing on the North Exchange, the commissioning of the EB furnace is expected to accelerate. This will help Tiangong Corporation seize the opportunity for rapid development of consumer electronics and further consolidate its leading position in the field of titanium alloy materials for consumer electronics, allowing investors to share in the benefits of its high-speed growth.