China Industrial Tech_ Capacitors_ Faratronic_Jianghai upgrade to Buy on rising solar_wind demand with attractive valuation(1)

The shares of Faratronic and Jianghai have pulled back 23% and 17%, respectively, over the past five months, mainly on concerns over weaker demand in the NEV space. Our global auto team has since adjusted their EV and PHEV unit sales forecast by -6%-+1% for 2022E-2025E (link). We, on the other hand, believe the market has not factored in the stronger demand from the solar and wind end-markets, where our global renewable energy team has raised their solar/wind installation forecast by 1%-4%/5%-21% for 2022E-2025E (link). All in, our TAM forecast changes by -1%-+3% in 2022E-2025E, implying a CAGR of 11% (vs. 10% at initiation). With our new 12-month TPs for Faratronic/Jianghai implying 40% and 41% upside, we upgrade the stocks to Buy from Neutral. Tina Hou +86(21)2401-8694 tina.hou@gsgh.cn | Beijing Gao Hua Securities Company Limited Jacqueline Du +86(21)2401-8948 | jacqueline.du@gsgh.cn Beijing Gao Hua Securities Company Limited Hao Chen +86(21)2401-8812 hao.z.chen@gsgh.cn | Beijing Gao Hua Securities Company Limited Zhou Li +86(21)2401-8648 zhou.li@gsgh.cn | Beijing Gao Hua Securities Company LimitedChina Industrial Tech Capacitors: Faratronic/Jianghai upgrade to Buy on rising solar/wind demand with attractive valuation8 December 2022 | 9:25PM CST Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. _ Faratronic (600563.SS) Faratronic is the No.1 film capacitor supplier globally, with 21% market share in 2022E (vs. 17% in 2021), per our estimate. We like the company for its pure-play nature in (1)film capacitor levered to EV/solar/wind markets, scale advantage and in-house (2)production capabilities translating to industry leading margin profile, (3)employee-owned structure highly aligns management/company interest with shareholders (more details in: Faratronic: New energy applications to drive the next round of growth; initiate at Neutral). In terms of market concerns on cost, we note that although high-end film price has continued to increase due to supply tightness, the rate of increase has slowed down from 50% in 2021 to 10% in 1-3Q2022; on the other hand, raw material prices such as tin/zinc/copper have come down since 2Q22, which could help to offset part of the cost pressure from film. In addition, Faratronic can enjoy priority of film supply, leveraging its position as the largest film capacitor maker globally. The company is also expanding into new areas such as DC power transmission and railway/subway systems. Valuation We forecast 27%