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On Friday, BofA Securities began coverage of Shenzhen Megmeet Electrical (002851:CH), a prominent player in China’s power supply and industrial control sector. The firm assigned a Buy rating to the company’s stock along with a price target of RMB60.00, indicating a 35% potential upside from its current level.
BofA Securities highlighted Megmeet’s diverse market coverage, which spans IT, home appliances, electric vehicles (EVs), renewable energy, and factory automation. The firm’s analysts are optimistic about Megmeet’s future, projecting a 53% compound annual growth rate (CAGR) in earnings from 2025 to 2027. This forecast is largely based on anticipated robust sales growth across Megmeet’s AI server power supply, home appliance control, and EV component segments, coupled with an expected improvement in gross profit margins (GPM) between 2026 and 2027.
The price objective set by BofA Securities is derived from a sum-of-the-parts (SOTP) valuation method. This approach assigns a 30x average price-to-earnings (P/E) ratio for Megmeet’s legacy business for the years 2025-26 and a 50x P/E ratio for its AI server power supply business for the year 2026.
BofA Securities also noted potential risks that could impact Megmeet’s stock performance. These risks include the imposition of tariffs, a potential downturn in AI capital expenditures, intensifying market competition, and fluctuations in the prices of materials. Despite these concerns, the firm’s initiation of coverage with a Buy rating reflects a positive outlook on Megmeet’s growth trajectory and market position.
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