Dufu Technology Corp (DUFU) is principally engaged in the manufacturing of high-precision engineering parts and components. The group is a global market leader in the supply of disk spacers, a critical component for HDD (contributes over 70% to the topline). Over the years, DUFU has been diversifying its product portfolios to outweigh the negative impact of HDD market centric to non-HDD segments (sheet metal and stamping division), mainly for the semiconductor, medical and automotive industries. Currently, DUFU exports (contributes over 90% to sales) its products to more than 10 countries across the world covering Asia Pacific, Europe, Oceania and North American region.

Despite persistent threat from the Solid State Drive (SSD) due to faster reading speed and decreasing price trend, we believe HDD remains the top choice for corporate use (#Figure 1-IDC). In general, HDDs will continue to be the storage media of choice in areas dealing with large amount of data and workloads due to its price advantage over SSD, with terabytes (TB) and petabytes (PB) HDDs are now available in the market targeting mainly the enterprise data solution segment. Moreover, enhancements in various technological developments such as HAMR (heat-assisted magnetic recording) technology, MAMR (microwave-assisted magnetic recording) and development of dual actuator have helped HDD to remain relevant today.

Going Forward, DUFU are optimistic for its future outlook, premised on the surging demand for data centres to cater for full portfolio of digital infrastructure products, spanning across compute, storage, networking, security and related domains, and provides a comprehensive one-stop digital platform that includes cloud computing, big data, interconnectivity, Internet of Things (“IoT”), edge computing, artificial intelligence (“AI”) and 5G solutions. This bodes well for DUFU as it serves both the HDD and non HDD segments.

After recent correction from RM4.80 (6 July) to a low of RM4.12 (23 Aug), DUFU staged a mild rebound to end at RM4.26 last Friday, with the indicators showing uptick bias. A strong breakout above its RM 4.38 (0.382 FR) will spur the price higher toward RM4.54 (0.618 FR) before reaching our LT target at RM4.80. Cut loss at RM4.06.

Source: Hong Leong Investment Bank Research - 13 Sept 2021