Galaxy Securities: "Recommend" rating on the 3C equipment industry. Innovation in smart phones drives the start of the capital expenditure cycle.

Galaxy Securities issued a research report stating that the global and Chinese smartphone shipment growth rate has turned positive on a quarterly basis, with top manufacturers like Apple entering the AI smartphone market; the new foldable screen phones are entering a mass production stage, and the new material titanium alloy is accelerating popularization. The form factor, material, and AI innovation are expected to lead the 3C industry towards a positive trend, recommending a buy rating for the 3C equipment industry; suggesting attention to Dongguan Golden Sun Abrasives (300606.SZ), Yuhuan CNC Machine Tool (002903.SZ); related targets for the MIM section; titanium aluminum composite material sector for Yinbang Clad Material (300337.SZ); 3D printing for Xi'an Bright Laser Technologies (688333.SH); 3C cutting tools for Zhuzhou Huarui Precision Cutting Tools.Co.,Ltd (688059.SH), Wolrd (688028.SH), OKE Precision Cutting Tools (688308.SH), Guangdong Dtech Technology (301377.SZ); CNC section for Guangdong Create Century Intelligent Equipment Group Corporation (300083.SZ), among others. The main points of Galaxy Securities are as follows: Retrospectively, smartphone innovation drives the capital expenditure cycle. The development of smartphones includes: penetration rate increase (2008-2014), incremental innovation (2015-2019), 5G smartphone volume increase (2019-2021), adjustment period (2021-2023), AI and innovation period (2023 to present). The global and Chinese smartphone shipment growth rate has turned positive on a quarterly basis, with top manufacturers like Apple entering the AI smartphone market; the new foldable screen phones are entering a mass production stage, and the new material titanium alloy is accelerating popularization. Foldable screen smartphones maintain a stable growth momentum, with global shipments expected to reach 100 million units by 2027 (CAGR 2023-27 about 40%). Huawei led the foldable screen innovation by releasing the world's first tri-fold phone, Mate XT, in September 2024. The global foldable screen smartphone CR2 (Samsung and Huawei) is over 75% in 2023, with Huawei's market share reaching 35% in Q1 2024. Since Q2 2023, domestic foldable smartphone shipments have maintained year-on-year growth between 80% and 170%; the domestic market structure includes Chinese brands Huawei, Honor, vivo, oppo gradually increasing their market share, while Samsung's share dropped from 29% in 2021 to 4% in H1 2024. Flexible screens and hinge mechanisms are incremental components in the foldable screen smartphone supply chain. Apple, Honor, and other manufacturers have introduced titanium alloy materials in multiple phones, with significant value in post-processing steps like grinding and polishing. The introduction of titanium alloy structures includes the phone frame, hinge axis cover, lens ring, etc. The supply chain includes sponge titanium in the upstream, 3D printing and CNC, post-processing in the midstream, and consumer electronics in the downstream. MIM/3D printing/precision machining sectors have market space and elasticity calculation. Assuming a conservative annual average of 50 million units and 100 million units for foldable screen smartphones and titanium alloy frame flat panel machines respectively in 2024-2027: under the trend of smart foldable screen & titanium alloy, the global market space by 2023 exceeds 20 billion yuan in sub-categories such as titanium alloy frame titanium-aluminum composite material, foldable screen hinge MIM parts, titanium alloy axis cover grinding and polishing services. We calculate the corresponding revenue elasticity of listed companies based on the market space of each sub-category, with companies that have good competitive landscape and revenue elasticity including: Dongguan Golden Sun Abrasives in the titanium alloy grinding and polishing service + equipment sector; NBTM New Materials Group, Jiangsu Gian Technology in the foldable screen hinge MIM parts sector; Yinbang Clad Material in the titanium aluminum composite material sector. Risks: Risks of industrialization not meeting expectations; risks of intensifying market competition; risks of calculation deviations caused by report assumptions; risks of industry fluctuations; risks of downstream capacity expansion not meeting expectations; risks of product research and development not meeting expectations.