Ping An Securities: Folding screen phone shipments reverse the market and incremental components welcome new opportunities

The Zhitong Finance App learned that Ping An Securities released a research report saying that the folding screen phone market is currently in the absence of Apple. Android is seizing the opportunity of entering the high-end market and continuously changing folding screen products to seize market share. In particular, in 2022, the number of new folding screen phone products launched rapidly increased. The market is showing a trend in full bloom. The folding screen phone market penetration rate has further increased, compounding the continued strength of the domestic market. It is expected that global folding screen phone shipments will increase 52% to 22.7 million units year on year in 2023. The bank believes that on the basis of continuous shipments of folding screen phones, hinges and flexible screens, as the core incremental components of folding screen phones, will fully benefit from the upgrading of the industrial chain.

Ping An Securities's main views are as follows:

Smartphone shipments were weak, and folding screen phones broke through against the market.

Since 2016, global smartphone shipments have continued to decline. Currently, the downward pressure on the global economy continues to increase, downstream consumer demand is weak, superimposed mobile phone innovation margins are weakening, and product homogenization is serious. The smartphone industry has entered the inventory replacement stage. In 2022, global smartphone shipments fell 11.3% year on year to 1.21 billion units. In this context, folding screen phones have achieved reverse market growth and have become an incremental market segment for the entire sluggish consumer electronics industry. Global folding screen phone shipments will increase 64% year on year to 14.9 million units in 2022, and are expected to increase 52% year on year to 22.7 million units in 2023.

Mainstream Android manufacturers are pressing and folding their codes one after another, and progress continues unabated.

Folding screen phones are an important category of high-end Android models. During the empty window period when Apple was absent from the folding screen phone market, major Android brands entered the market one after another. Starting in 2020, the release of new folding screen phones accelerated markedly, and the market is showing a flourishing trend. After experiencing early trial and settlement in the market, folding screen mobile phone products have continued to be optimized and improved in terms of product strength and industrial chain, and the market penetration rate is expected to increase further.

Hinge technology is a strategic focus, and the level of attention is constantly being raised.

As the main component to mitigate crease problems and reduce body weight, folding screen hinges have gradually become the strategic focus of various mobile phone manufacturers. Whether it is the structural design of the hinge or the material selection of hinge parts, various brands are continuously iteratively optimizing, and the number and complexity of hinge parts are also constantly increasing. Coupled with upgrades in materials, the added value of stand-alone machines continues to increase. Considering the complex shape and accuracy requirements of hinge parts, the MIM process can achieve large-scale mass production of high-precision metal parts and is the core low-cost solution for producing geometric parts with complex structures. Relevant MIM manufacturers will benefit from the gradual launch of folding screen phones.

UTG's advantages in many indicators are highlighted, and it is expected to become the preferred material for flexible screen covers in the future.

The screen cover is a key component for flexible screens to be foldable. Currently, the main materials used for screen covers are CPI and UTG. Both materials have foldable characteristics while maintaining high light transmittance. Compared to CPI, UTG is foldable while inheriting the characteristics of the original glass, has a better touch feel, and is also better in terms of thickness and crease control. It is expected to replace CPI as the mainstream flexible screen cover material in the future.

Investment advice: Currently, the folding screen phone market is empty. Android is seizing the opportunity of introducing the high-end market and continuously changing folding screen products to seize market share. In particular, in 2022, the number of new folding screen phone products launched rapidly rose, and the market was in full bloom. The folding screen phone market penetration rate was further increased, compounded by the continued strength of the domestic market. It is expected that global folding screen phone shipments will increase 52% year-on-year to 22.7 million units in 2023.

With leading manufacturers entering the market one after another, folding screen phones that have experienced many years of polishing have continued to be optimized and improved, both in terms of product strength and industrial chain. On the one hand, the degree of completion of folding screen mobile phone products continues to improve. Through material upgrades and structural design optimization, the problems of folding screen phones in terms of weight and crease have been greatly improved, and the user experience has been greatly improved; on the other hand, judging from recently released folding screen phones, product prices have shown an overall downward trend, gradually responding to market expectations, lowering users' purchasing threshold, and potential downstream consumer demand is expected to be released.

The bank believes that on the basis of continuous shipments of folding screen phones, hinges and flexible screens, as the core incremental components of folding screen phones, will fully benefit from the upgrading of the industrial chain. Specifically:

1) The hinge inherits core functions such as precise limit, damping protection, and crease control when opening and closing folding screen phones. With technology upgrades and product iterations, the hinge structure design is becoming more complex. At the same time, the number of parts is larger and the accuracy requirements are higher, and the added value of stand-alone machines is constantly increasing. It is recommended to focus on Jingyan Technology (300709.SZ) and Changying Precision (300115.SZ);

2) Compared with straight-board machines, the BOM ratio of display modules of folding screen phones has increased significantly due to the increase in the number of screens of folding screen phones and the increase in the cost of the flexible screen itself. It is recommended to pay attention to BOE A (000725.SZ);

3) As one of the most critical structural components of a flexible screen, the cover material is the key to being foldable. Compared to CPI, UTG has a thinner thickness and better crease control. With the advancement of the UTG production process, issues such as UTG manufacturing costs and large-scale mass production are expected to improve in the future. It is recommended to focus on UTG industry chain companies Kaisheng Technology (600552.SH) and Changxin Technology (300088.SZ).

Risk warning: 1) The development of the folding screen market falls short of the expected risk. 2) The risk of technology iterations related to folding screen phones. 3) The risk of increased competition. 4) Macroeconomic downside risks.