IPO First Day Price Estimate——Using Hongming Electronics as an Example

1. Determine Industry [Taogu Ba]
   The first step in valuation is to identify the company’s specific industry segment. Some companies have multiple business lines; it’s important to identify the most speculative concept.
   Hongming is a leading domestic manufacturer of specialized military-grade MLCC, corresponding to the industry of MLCC (Multilayer Ceramic Capacitors).

2. Determine Industry Position
   After confirming the industry, identify peer companies and industry leaders.
   The peers in the MLCC manufacturing industry where Hongming operates are as follows:

3. Sanhuan Group: The company’s MLCC products have achieved full production from hk01005 to 2220 (imperial sizes), with a rich product line.

4. Fenghua High Tech: Mainly produces MLCC, resistors, and other passive components; actively expanding MLCC capacity and accelerating high-end product transformation.

5. Huoju Electronics: Business includes MLCC and other electronic components.

6. Hongda Electronics: Main products include various capacitors, including MLCC. Completed R&D for high-reliability multilayer ceramic dielectric capacitors in 2025.

7. Dali Kaipu: Focuses on R&D, manufacturing, and sales of RF and microwave MLCC.

8. Hongyuan Electronics: A core manufacturer of electronic components centered on MLCC, widely used in military, communications, and other fields.
   Industry leaders:

9. Sanhuan Group: Over 50 years of experience in electronic ceramics, with MLCC products covering consumer electronics, automotive electronics, etc. Deeply involved in automotive-grade MLCC, validated by major manufacturers. In 2024, annual MLCC capacity exceeds 300 billion units.

10. Fenghua High Tech: Leading domestic MLCC company; since introducing China’s first MLCC production line in 1985, has focused on this field for 40 years. Achieved full coverage of 01005-2225 sizes and obtained automotive-grade certification. Its main MLCC products have been awarded “National Manufacturing Single Champion” and hold a leading domestic market share.

11. Hongming Electronics: Leader in specialized/high-reliability MLCC; recognized as a “Small Giant” in national specialized and innovative enterprises, with its special MLCC products rated as “Manufacturing Single Champion.” Critical in defense (over 89% revenue share). Deeply supports aerospace, weaponry, ships, nuclear industries, and other national key projects. With over 60 years of technical accumulation, it has full industry chain capabilities from ceramic materials to components.

12. IPO Information
    Based on public data:

13. Issue Price: 69.66 RMB per share

14. Price-to-Earnings Ratio (P/E): 33.61x

15. Total Shares After Issuance: approximately 121.55 million shares

16. Total Market Cap After Issuance: approximately 8.466 billion RMB (69.66 RMB/share × 121.55 million shares)

The issue price is 69.66 RMB, but the opening price on the first trading day will surge, and after opening, the price may rise further or fall sharply. Therefore, we estimate a psychological price level.
Like an auction, the starting bid is usually low; the price at which you would bid is what we estimate.

4. Comparative Method
   Without internal company information, even with all financial data, valuation is impossible because it reflects intrinsic value, not just accounting assets. Comparing with comparable peer companies is more appropriate.

Known: IPO prospectus issue price: P/E of 33.61x, corresponding to 69.66 RMB.

1. Industry average P/E from the prospectus: 65.16x, corresponding to 135.10 RMB.
2. Weighted average P/E of comparable companies: 74.90x, corresponding to 155.30 RMB.
3. Industry leader benchmarks:
   • Fenghua High Tech (market cap 23.3 billion RMB) as of March 24, P/E 76.30x, corresponding to 159.00 RMB.
   • Sanhuan Group (market cap 106.5 billion RMB) as of March 24, P/E 39.80x, corresponding to 83.00 RMB.
     Since its market cap is close to Fenghua High Tech, we benchmark against Fenghua.
4. Historical cycles of MLCC price increases in 2017-2018 and 2020-2021: Japanese ceramic capacitor prices increased cumulatively by 70% and 20%. Rising volume and price drove profit margins up 3-4 times, with P/E nearly doubling.
   Applying a doubled P/E of 67.22x yields a corresponding price of 139.32 RMB.

From low to high valuation:
135.10 RMB (industry average)
139.32 RMB (historical data)
155.30 RMB (peer companies)
159.00 RMB (industry leader)
Estimated valuation range: 135.10 RMB – 159.00 RMB.

5. Subjective Weighting Valuation Method
   Cross-validate the above range with another approach.
   Known: IPO issue price corresponds to 33.61x P/E at 69.66 RMB.

Analysis:

1. Hongming Electronics is the absolute leader in specialized MLCC, the largest in China, with scarcity premium in A-shares. Its product and market differences from comprehensive MLCC leaders Fenghua High Tech and Sanhuan Group justify a +30% premium.
2. Nearly 90% of Hongming’s electronic component revenue comes from defense; high reliability and high barriers make its valuation higher than typical consumer companies. Its solid foundation and deep moat in military and aerospace markets are difficult for Fenghua and Sanhuan to challenge in the short term. This irreplaceable military and aerospace concept warrants a +20% premium.
3. The MLCC industry is in a structural price increase window; global leader Murata has begun full-scale price hikes. High-end demand from AI servers and other sectors boosts industry prosperity, and the market is pricing this in early. +20% premium.
4. Hongming’s circulating market cap is 1.33 billion RMB, very small, meaning limited tradable shares initially. In A-shares, low float stocks attract capital speculation, often pushing prices well beyond rational valuation. +10% premium.
5. Murata, the global leader, is actively mitigating geopolitical risks by initiating decoupling from U.S.-China rare earth supply chains, reducing dependence on Chinese rare earths for MLCC production, and expanding overseas supply chains in the U.S., Australia, etc. High-end automotive, industrial control, and military-grade MLCCs require rare earth elements like lanthanum, cerium, neodymium for high capacity, stability, and longevity. No other country besides China can produce high-purity rare earth deep-processing products at scale and low cost. Decoupling will likely increase raw material costs and supply instability for Murata, while domestic MLCC manufacturers with complete rare earth supply chains have cost and supply advantages. Under this dynamic, domestic substitution of MLCC will accelerate, leading to a systemic reassessment of related industries. +20% premium.

Applying a 100% subjective premium yields a valuation of 139.32 RMB. As a subjective reference, it varies by individual and may not be comprehensive. The qualitative aspect is more important than quantitative, mainly for cross-validation of the reasonableness of the comparative method.

In summary, start with objective data—comparing industry average, historical cycles, peers, and industry leaders—to derive a valuation range, then cross-validate with subjective scoring. The resulting reference valuation is 135.10 RMB – 159.00 RMB.

In reality, Hongming’s opening price was 140.14 RMB, and the closing price was 128.65 RMB.

Valuation is just the first step in buying new stocks; short-term sentiment, such as afternoon military industry news affecting Hongming, has a greater impact on the opening price. If future days see demand-driven price increases, like Fenghua and Sanhuan hitting the daily limit, it will significantly influence the price.