Stock Price Prediction

DescriptionAI is a fascinating trend and one that no doubt will continue to dominate news. Globally AI has bloomed like a rose,Vital Components, the market chose.But the bubble inflated,Soon may be investors, frustrated,Might find their dreams popping in prose!Hat-tip to Chat GPT for coming up with this little ditty to help set the table.  Now here are some quick background facts:Asia Vital Components (“AVC”) is a Taiwanese based manufacturer of fan coolers for CPUs, laptops, PCs, servers, etc.  They also provide thermal products and peripherals including heat sink and thermal modules. AVC is +175% YTD and +621% from pre-COVID.  From IPO through YE 2019 the TSR (with dividends reinvested) on the stock was 6.27%.  From YE 2019 through today the TSR (with dividends reinvested) on the stock was +74.3%.  COVID + AI has been good to folks who make PC/server fans.The following chart shows segment gross margins over time.  Bulls will have you believe this is an AI story, etc.  but its simply just an ASP story (historically negative ASP business that shifted positive in COVID then happened to catch lightening in a bottle with some AI stuff that will elongate it but will attract competition leading to a margin reset):As can be seen above, every segment is substantially above its LT average and this starts right around COVID when everything ticks up at once.  As supply capacity is added in thermal we should see gross margins revert and the overall mix go lower.download financial statementsOption Pricing Calculatorstock price calculatorAI is obviously the big sexy and resides in the thermal (have to cool all that robot thinking).  AI gross margins are in the 25%-30% range for AVC vs 20%-25% for the traditional business (some bulls are suggesting AI margins could be as high as 40% but this is not sustainable given low barriers to entry – see more on this below).  AVC management already acknowledges there could be ASP and gross margin pressure over time.  For FY23E AVC will only derive 4% of its revenue from AI related business.  For FY24E (using sell-side consensus) this is estimated to rise up to a towering 7%.  The AI portion of the profit mix for FY23E is 8% and for FY24E this is 11%.  Point being unlike other hardware businesses with vastly greater AI exposure this is not that. This is literally small fans and water cooling pipes – not cutting edge anything… AVC will not ship into the B100 with their liquid cooling (3DVC for A100 was a 50/50 split between Cooler Master and AVC).  3DVC = 3D vapor chamber. For the H100 it is sole sourced by Cooler Master.   The H100 SXM’s power consumption is 700W so it requires 3DVC. As for mass production of H100 SXM, Cooler Master serves as Nvidia’s primary supplier while Nvidia also has Furukawa as its secondary supplier. AVC has a yield rate that is 40-50% lower than Cooler Master’s.  The major challenge with 3DVC lies in the capillary structure located at the welding position between heat pipes and VCs. While the material costs of melding vertical heat pipes in 3DVC may be similar to that of using eight heat pipes to weld an ordinary VC, quotations for 3DVC can be doubled due to the lower yield rate and production processes involved.Nancy Pelosi Stock Trades TrackerCongress Stock Trades TrackerAVC is hoping to take advantage of this share starting in 2024 as they open up capacity in Taiwan.  Right now there is 24-32 fans per rack and gross margins for AI fans are in the $30 ASP with 25%-30% range.  Many bulls on the street think the ASPs can go higher but with lots of competition and a non-industry leading position (Cooler Master is the leader) it is hard to push pricing power.  Right now AVC primarily sells liquid cooling to Chinese customers.  They do not sell liquid cooling to SMCI who has its own supplier.  AVC competes with: Auras, Delta, and Cooler Master.  Overall this is a business with significant competition – frankly its why this business has averaged fairly mediocre gross margins for so long.  For the world to suddenly think this has magical pricing power and cooling has gotten insanely more complex is really missing the boat. Portfolio OptimizationEfficient Frontier CalculatorAsset CorrelationsBacktest PortfolioPortfolio VisualizerOnline Monte Carlo SimulationIn the regular server business AVC has been gaining share.  They expanded from MSFT/AMZ (their initial customers) and have added some of the other Magnificent Seven (GOOG + META).  The main reason gross margins expanded during covid was a business mix shift – the chassis business used to be 80% PC chassis (which was 0% or loss making) and today its 80% server which is profitable.  So its somewhat unfair to compare to LT historical averages – but as shown I don’t think it will get back to those lows….just lower from today’s highs.  At present AVC has significant inventory sitting at distribution hubs which are waiting for customers to clear – being a Taiwanese company you get monthly data on this and the October monthly data was weak as H100 has not ramped yet so they have a bunch of products just sitting out there. This has all the hallmarks of a traditional constrained capacity supply short (worth flagging this industry has historically declining ASPs in between product cycle launches which is why on average gross margin trends lower except for new product spikes….we are in one of those now).  Demand shot up making capacity constrained – gross margins shot up with ASPs and now huge amounts of capacity are being added potentially making gross margins revert to some prior level (below the current peak).  In the past period we saw strong ASP increases driven by platform upgrades like Eagle Stream. But in other areas we have seen pricing declines for graphics cards and potential inventory control in that segment suggest non-server areas face weaker near-term pricing dynamics.  The same will be true in the server segment as supply comes online. Apple Stock ValuationNetflix Stock ValuationMicrosoft Stock ValuationMeta Stock ValuationTesla Stock ValuationAmazon Stock ValuationCitibank Stock ValuationNvidia Stock ValuationAMD Stock ValuationBest Buy Stock ValuationAlphabet Stock ValuationHome Depot Stock ValuationJPMorgan Stock ValuationAs capacity comes online in 2024 we will start to see more ASP declines (we can track this actively with monthly disclosures).  How much can we make?Bull argue with the new AI fanciness here and sustainably higher margins (ignoring competition + large oncoming supply) this should trade at 24x P/E vs the long-term average of ~11x (see below):Using some finely-tuned monkey math.  If this earns something like TWD$75B in 2025E (street is at $80B) and does so at a 8% EBIT margin (LT historical average is 4.3% and they will do +12.4% this year) that will result in ~12 in EPS.  If they get their LT average P/E of 11x and we hold the dividend flat at the predicted new level of 4.60 TWD per year (1.55% yield) that implies a 40% downside and -20% IRR on the short.short interest apistock value calculatorBlack Scholes CalculatorAs in all industries, especially tech hardware, this time is different stories are usually great ones to bet against.  With the already high “peak” this resides at given the YTD rally it’s a good spot to start.

AI是一股引人入胜的浪潮，无疑将持续占据新闻头条。放眼全球，人工智能如玫瑰般蓬勃绽放，而Vital Components正是市场所青睐的标的。但当泡沫膨胀，投资者很快便会陷入沮丧，终将发现自己的美梦如文字般幻灭。特此感谢ChatGPT为我们创作这首小诗，作为本次分析的引子。

以下为简要背景信息：**Asia Vital Components（以下简称AVC）**是一家总部位于中国台湾的厂商，主营CPU、笔记本电脑、个人电脑、服务器等设备的风扇散热器，同时亦提供散热产品及周边配件，包括散热器与散热模组。

年初至今，AVC股价涨幅达175%，较新冠疫情前累计上涨621%。自首次公开募股至2019年末，该公司股票的**总股东回报率（Total Shareholder Return，TSR，含股息再投资）**为6.27%；2019年末至今，该回报率则为74.3%。新冠疫情与人工智能的浪潮，为PC/服务器风扇制造商带来了可观的收益。

下图展示了各业务板块毛利率随时间的变化趋势。看多者会声称这是一场人工智能驱动的行情，但本质上这只是**平均售价（Average Selling Price，ASP）**行情：该业务历史上ASP长期为负，新冠疫情期间转为正值，随后恰好抓住了人工智能相关业务的机遇，得以延长景气周期，但同时也将吸引大量竞争者，最终导致毛利率回归常态。

如上图所示，所有业务板块的毛利率均大幅高于长期平均水平，这一趋势始于新冠疫情期间，彼时全行业景气度同步攀升。随着散热业务产能逐步扩张，毛利率将回归常态，整体业务结构的毛利率也将随之走低。

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人工智能无疑是当前的热门赛道，而散热业务正是其核心支撑（毕竟需要为算力设备提供散热保障）。AVC的人工智能相关业务毛利率介于25%-30%之间，而传统业务毛利率仅为20%-25%。部分看多者认为人工智能业务毛利率可达40%，但鉴于该领域准入门槛较低，这一水平并不具备可持续性——具体分析详见下文。AVC管理层亦已承认，长期来看公司或将面临ASP与毛利率的下行压力。

在2023财年预期中，AVC来自人工智能相关业务的营收占比仅为4%；根据卖方机构一致预期，2024财年该占比预计将攀升至7%。2023财年预期中，人工智能业务的利润贡献占比为8%，2024财年则为11%。需要明确的是，与其他大幅布局人工智能的硬件企业不同，AVC的业务本质上仅为小型风扇与水冷管路，并无任何前沿技术含量。

AVC的水冷产品将不会应用于B100加速器（针对A100的3D均热板（3D Vapor Chamber，3DVC）订单，Cooler Master与AVC各占50%份额）。3DVC即3D均热板。H100加速器的水冷产品则完全由Cooler Master独家供应。H100 SXM模组功耗达700W，因此必须使用3DVC。在H100 SXM的大规模生产中，Cooler Master是英伟达的核心供应商，同时英伟达亦将古河电工（Furukawa）作为备选供应商。AVC的产品良率较Cooler Master低40%-50%。3DVC的主要技术难点在于热管与均热板焊接位置的毛细结构。尽管3DVC中垂直热管的焊接材料成本与使用8根热管焊接普通均热板的成本相近，但由于良率较低且生产工艺复杂，3DVC的报价可高达普通产品的两倍。

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AVC计划于2024年起借助在中国台湾新增的产能抢占市场份额。当前每机架可搭载24-32个风扇，人工智能专用风扇的ASP约为30美元，毛利率处于25%-30%区间。市场上众多看多者认为ASP有望进一步走高，但鉴于行业竞争激烈且AVC并非行业龙头（Cooler Master为行业领导者），公司很难掌握定价主动权。目前AVC的水冷产品主要销往中国客户，并未向超微电脑（Super Micro Computer, SMCI）供货，后者拥有自有供应商。AVC的主要竞争对手包括Auras、台达电子（Delta Electronics）与Cooler Master。总体而言，该行业竞争激烈——这也正是长期以来该业务毛利率始终处于中等水平的原因。若市场突然认为该业务拥有神奇的定价能力，且散热技术已变得极为复杂，实则完全误解了行业本质。

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在常规服务器业务领域，AVC的市场份额正在提升。公司最初的客户为微软（Microsoft, MSFT）与亚马逊（Amazon, AMZ），如今已拓展至其他部分美股七巨头（Alphabet, GOOG与Meta Platforms, META）。新冠疫情期间毛利率扩张的主要原因是业务结构转型：此前机箱业务中80%为PC机箱（毛利率为0%甚至亏损），如今该业务中80%为服务器机箱（实现盈利）。因此与长期历史平均水平进行对比略显不公，但如前文所述，我认为毛利率不会回到此前的低点，仅会从当前的峰值回落。目前AVC在分销中心存有大量库存，等待客户清货：作为中国台湾企业，其库存数据按月披露，10月的数据表现疲软，因H100加速器尚未实现大规模产能爬坡，公司积压了大量产品。

这一切都具备传统产能紧张、供给短缺的行业特征——值得注意的是，该行业历史上在产品周期空档期ASP持续下行，这也是除新产品峰值之外，毛利率长期趋于下行的原因，而当前正处于这一峰值周期之中。需求暴涨导致产能紧张，毛利率随ASP同步走高，如今大量新增产能即将落地，或将推动毛利率回归此前的水平（低于当前峰值）。此前受鹰流（Eagle Stream）平台升级等因素驱动，ASP出现显著增长。但在其他领域，显卡价格已出现下滑，且该板块的库存管控措施表明，非服务器业务板块短期定价环境疲软。随着服务器业务产能陆续落地，该板块也将面临同样的定价压力。

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随着2024年产能陆续落地，我们将看到ASP进一步下行（可通过月度披露数据进行实时追踪）。那么该业务的盈利空间究竟有多大？

看多者认为，凭借全新的人工智能相关业务与可持续的高毛利率（忽略行业竞争与即将到来的大规模产能扩张），该公司股票的市盈率（Price-to-Earnings Ratio, P/E）应达到24倍，而其长期平均市盈率仅约为11倍（详见下文）。以下通过简化模型进行测算：假设2025财年公司营收约为750亿新台币（New Taiwan Dollar, TWD）（市场一致预期为800亿新台币），息税前利润（Earnings Before Interest and Taxes, EBIT）率达到8%（长期历史平均为4.3%，今年预计可达12.4%），则每股收益（Earnings Per Share, EPS）约为12新台币。若市盈率回归长期平均的11倍，且股息维持在预期的每年4.60新台币（收益率为1.55%），则该股票存在40%的下行空间，做空的内部收益率（Internal Rate of Return, IRR）为-20%。

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与所有行业（尤其是科技硬件行业）一样，“这次情况不同”的论调通常都是做空的绝佳标的。鉴于年初至今的股价上涨，该股票已处于相对高位，做空正是一个不错的切入点。