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Since the Covid-19 outbreak, Weixing has demonstrated good operational resilience and accelerated growth against the downward trend. The direct reason is that the Company has effectively undertaken the transferred orders due to YKK’s inefficient order fulfillment, while the fundamental reason is that the Company has accumulated advantages in product R&D/overseas layout/customer acquisition over a long time. In terms of R&D, Weixing has improved quality & lead time through intelligent manufacturing, so cumulative product innovation steadily pushes up product unit prices. As for overseas business, the Company has made forward-looking layout in overseas markets as early as 2016 to localize its service/production capacities. In terms of customer acquisition, Weixing has obtained orders for auxiliary materials from European high-end luxury brands (e.g., Max Mara and Moncler) in recent years. Thanks to long-term sound partnerships with Uniqlo and YKK, it also obtained large orders from Uniqlo in recent years. According to Weixing’s recent announcement on private placement, the raised funds will be used to expand the Company’s production capacity. Judging that Weixing will emphatically expand its zipper production capacity in the next three years for more growth headroom in the future, we give the Company 25x 2023E PE to arrive at a target price of Rmb16, corresponding to a market cap of Rmb16.7bn, and reiterate the “BUY” rating.Auxiliary materials segment: Gradually becoming a domestic leader, Weixing shifts its value chain to Southeast Asia in accelerated industry concentration. Based on the data of OEC and QYResearch and the announcements of relevant companies, we estimate that the shares of YKK/Weixing/SBS Zipper /China Apex Group in the global zipper market in 2021 was 17.8%/1.6%/1.4%/0.2%, respectively. In 2020, Weixing’s export value accounted for 6.1% of China’s total exports of auxiliary materials (buttons and zippers), up by 0.4ppts YoY. Affected by such factors as labor cost/tax rate/tariff, the proportion of Southeast Asia’s textile exports has been increasing for a long time. Enterprises such as Weixing with overseas production capacity layout in the early years now have first-mover advantages, and the industry concentration trend of auxiliary materials is accelerating. Growth rationale & competitive advantages: Multi-dimensional advantages boost continuous market share expansion. As for Weixing’s market share expansion, the direct reason is that the Company has effectively undertaken the transferred orders due to YKK’s inefficient order fulfillment (caused by Covid-19 disturbance), while the fundamental reason is that the Company has accumulated advantages in product R&D/overseas layout/customer acquisition/corporate management over a long time to retain quality customers. 1) Product strengths: Intelligent manufacturing boosts the comprehensive upgrading of technologies, services and products. Weixing’s automated production efficiency, product innovation and delivery speed have been continuously upgraded, and the Company boasts sufficient value chain pricing power. It has maintained high and stable gross profit margin of 30%+ and net profit margin of 10%+ for a long time. The average selling price (ASP) of Weixing’s zipper products reached a CAGR of 4% over 2019-2021 (vs. YKK’s -0.4% and SBS Zipper’s 1%). Meanwhile, the Company’s new businesses (ribbon/rope belt) may see continuous sales volume growth going forward. 2) Overseas first-mover advantages: Prospective layout in overseas markets to localize service/production capacities. On the sales side, international brand customers now account for more than 60% of Weixing’s total customer base. On the production side, overseas production capacities accounted for 15.0% of the Company’s total in 2021 (from 8.7% in 2020). Weixing acted early in overseas business deployment, and may further enhance the efforts in this regard once its private placement project is implemented. 3) Market expansion capability: Growing orders from domestic and overseas customers. ① Continuous customer acquisition in overseas markets. In recent years, Weixing has obtained orders for auxiliary materials from European high-end luxury brands (e.g., Max Mara and Moncler), and has increased the business proportions with its top-tier customers. Thanks to sound long-term partnerships with Uniqlo and YKK, it also obtained large orders from Uniqlo in recent years. ② In-depth cooperation with domestic customers. In some areas, Weixing now preemptively works with its customers in the product development process. For example, the Company cooperated with Anta to develop the zippers for the latter’s dragon-pattern champion outfit, further enhancing customer stickiness. 4) Corporate culture: Comprehensive incentives to release the vitality of senior management. Weixing implemented its fourth/fifth equity incentive programs in 2020/21. The Company’s first three equity incentive programs have successfully met the performance indicators, while its 2021 earnings also reached the assessment targets of the fourth/fifth equity incentive programs for the year. Capacity expansion projects: Weixing has accelerated the construction of its production base (mainly zipper production capacity) in Vietnam. On Nov 22, 2022, Weixing announced its private placement plan, aiming to raise no more than Rmb1.2bn from no more than 35 specific investors; the number of shares to be issued shall not exceed 30% of the Company total equity before the issuance. The raised funds, totaling Rmb1.44bn, will be mainly used for Weixing’s 970mn-meter-a-year high-grade zipper ribbon and garment auxiliary materials relocation and technological upgrading project (Phase I), 220mn-meter-a-year high-grade zipper production capacity expansion project, garment auxiliary materials production project in Vietnam, and supplementing working capital. We conservatively estimate that after the capacity expansion projects reach full production, the Company’s zipper/button production capacities will be about 1.4bn meters/more than 12bn pieces in 2026, with 2021-26E production capacity CAGRs of about 11%/2%. We judge that Weixing will emphatically expand its zipper production capacity in the next three years. Potential risks: Disappointing capacity expansion progress; larger-than-expected decline in downstream demands; order fluctuations; low production efficiency resulting from Covid-19 flare-ups; and larger-than-expected exchange rate fluctuations. Earnings forecast, valuation and rating: Recently, as uncertainties in the macro-economy and consumption【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。