The story of Hon Hai Precision .................................................................................................................... 5
Top line up 450x over the past 16 years................................................................................................... 5
Key growth drivers: Precision manufacturing + vertical integration + industry integration........................ 9
Precision manufacturing opportunity I: Premium industry attributes.................................................... 14
Industry attribute I: Huge market size and wide applications ................................................................. 14
Industry attribute II: Technology-intensive .............................................................................................. 19
Industry attribute III: Stronger profitability............................................................................................... 23
Industry attribute IV: Many great companies .......................................................................................... 26
Precision manufacturing opportunity II: Technological innovations ..................................................... 29
Innovation boosts replacement demand ................................................................................................ 29
Precision manufacturing an indispensible part of technological innovations .......................................... 29
Technological innovations boost precision manufacturing...................................................................... 32
Precision manufacturing opportunity III: Chinese players to embrace strategic opportunities .......... 35
European, US and Japanese companies the major players, Chinese manufacturers outstanding on cost
advantages and rapid service response................................................................................................. 35
Chinese precision manufacturers gain strategic opportunities ............................................................... 37
China boasts advanced technologies and labor in the machinery manufacturing industry .................... 39
Local capital market offers platform for integration................................................................................. 41
Precision manufacturing opportunity IV: Vertically integrated business model ................................... 44
Vertically integrated manufacturers enjoy much stronger innovation ..................................................... 44
Core advantages of vertically integrated manufacturers ........................................................................ 45
Precision manufacturers are most likely to become vertically integrated ............................................... 48
Precision manufacturers have established an extensive presence........................................................ 48
Supply chain of precision manufacturing and investment recommendations...................................... 50
Precision manufacturing supply chain.................................................................................................... 50
Supply chain of China’s precision manufacturing industry ..................................................................... 51
Three types of companies are likely to outshine the competition: .......................................................... 51
Investment recommendation.................................................................................................................. 52
Goertek (002241.SZ): BUY.......................................................................................................................... 53
Luxshare (002475.SZ): Initiate with BUY................................................................................................... 54
Everwin (300115.SZ): Initiate with BUY ..................................................................................................... 55
Deren (002055.SZ): Initiate with BUY......................................................................................................... 56
China Aviation Optical-electrical Technology (002179): Initiate with BUY ............................................. 57