Inventronics: Product costs controllable in the second half; horticultural lighting market demand rises

In the first half of 2021, Inventronics achieved revenue of RMB 662 million, a Year-on-year (YoY) increase of 61.47%; net profit attributable to shareholders of the parent company was RMB 81.8353 million, a Year-on-year (YoY) increase of 106.53%.

The company's high-power LED driver products continued to grow rapidly, achieving revenue of RMB 459 million, a year-on-year increase of 85.61%; medium-power LED driver products developed steadily, achieving revenue of RMB 124 million, a year-on-year increase of 14.86%. The horticultural lighting sector, which has developed rapidly in the past two years, has become one of the important application areas for the company's products. During the reporting period, the revenue from the company's horticultural lighting-related LED driver products increased by 381% compared to the same period last year.

In the field of new energy vehicle charging, the company promotes the development and upgrading of on-board charger products, and has mainly launched the CDU series for high-speed models. During the reporting period, revenue from new energy-related businesses was RMB 17.3029 million, a Year-on-year (YoY) increase of 118.92%, mainly derived from on-board charger products.

Inventronics recently hosted research visits from multiple institutions. Let’s take a look at the information the company disclosed.

Q1: From the current situation, how has the company been affected by the global industry-wide material shortage in the third quarter?

A1: From the current situation, the most difficult period has passed, and the raw material supply issue has been alleviated to some extent.

Q2: Will raw material prices rise in the fourth quarter?

A2: The increase in product costs during the first half of the year was mainly due to the imbalance between supply and demand for raw materials, which led to procurement through higher-priced (Sales) channels. We believe that the large-scale abnormal price increases for electronic components have ended, and price fluctuations are becoming reasonable and stable; the prices of raw materials such as chips are not expected to have a significant impact on the company's product costs.

In addition, fluctuations or increases in commodity prices in the international market may lead to fluctuations in the prices of other raw materials. For example, fluctuations in copper prices will affect the price of PCB boards. However, overall, based on the current situation, product costs in the second half of the year are controllable.

Q3: Could you please introduce the Mexico factory? Is the Mexico factory positioned to produce only LED drivers?

A3: The Mexico factory has achieved mass production, with a current monthly output of approximately 20,000 units. Production capacity is still in the ramp-up phase.

In addition to manufacturing LED drivers / power supplies, the company's positioning for its Mexico factory also includes: 1. Mitigating tariff barriers caused by trade friction; 2. Locating the manufacturing base close to customers to provide more intimate and rapid services; 3. Providing OEM services for customers with production capacity bottlenecks and those unable to establish overseas factories, including other product services such as luminaire assembly.

Q4: What is the current production capacity of the company's Tonglu production base? Is the entire Tonglu production base used for production?

A4: The company's Tonglu production base can provide a monthly production capacity of over 1 million units. Phase 1 and Phase 2.1 of the company's LED driver industrialization base project (Tonglu) have been completed, and Phase 2.2 is under construction. Phase 1 covers approximately 75,000 square meters, of which about 50,000 square meters of factory space is used for LED driver production. The currently idle Phase 2.1 is used for investment property to increase cash flow and improve asset utilization efficiency.

The company's production capacity is flexible and highly scalable. With existing facilities and equipment, the company has continuously increased its production capacity in recent years through information system construction and production line automation upgrades. Furthermore, production capacity can be rapidly increased by adjusting staff shifts and extending working hours. If further expansion is required, the company can quickly boost production capacity within 2-3 months by adding production facilities and equipment.

Q5. What impact has the national rural revitalization strategy had on the company?

A5: Under the national rural revitalization strategy, LED horticultural lighting will usher in development opportunities; the company's LED driver / power supply products are important components of LED luminaires, and are expected to see greater market space in the horticultural lighting niche.

1. The cost-effectiveness of LED horticultural lighting has surpassed that of high-pressure sodium lamps (HPS), and costs continue to decline. The cost-effectiveness of LED horticultural lighting is now comprehensively superior to traditional high-pressure sodium lamps (HPS); the European greenhouse cultivation and North American cannabis cultivation markets have begun shifting to LED. LED luminous efficacy continues to improve, while equipment costs keep falling.

2. LED supplemental lighting significantly improves the yield and quality of agricultural products such as fruits and melons, and the equipment has a long service life. With national and local policy support for digital, innovative, and modern agriculture, LED supplemental lighting will have high economic value. Currently, research on plant supplemental lighting is still in its early stages, with relatively rigid lighting solutions and low levels of intelligence, leaving significant room for future development and optimization.

3. LED horticultural lighting solutions can effectively address the impact of limited land resources and unstable climate on agricultural industrialization and harvest stability, significantly increasing yield and helping to ensure food and agricultural product safety.

Therefore, we believe that LED horticultural lighting solutions will develop rapidly against the policy backdrop of promoting rural revitalization, accelerating the modernization of agriculture and rural areas, and addressing "agriculture, rural areas, and farmers" issues. Consequently, market demand for corresponding key components, such as LED drivers / power supplies, will rise in tandem.