On Tuesday, Goldman Sachs (NYSE:GS) initiated coverage on King Slide, a leading supplier of rail kits for various applications, with a Buy rating. The firm's positive outlook is based on the anticipated growth in server shipments and King Slide's strong market position.
The firm has set a 12-month price target of NT$1,405 for King Slide, suggesting a 30% upside and reflecting a 32 times multiple of the estimated 2024 earnings per share.
King Slide, recognized for its significant share in the global rail kit market for servers and kitchen drawers, is poised for substantial growth. With approximately 50% of the AI server rail kit market and 33% of the general server rail kit market in 2023, the company is expected to see its server rail kit revenue increase by 54% in 2024 and 29% in 2025. This growth is attributed to a doubling of AI server shipments and a recovery in general server shipments expected in the coming year.
The company is also venturing into the 800G switch rail kit market, which represents a new opportunity.
"We see King Slide maintaining its leading positions supported by its competitive edges, solid moat (built by continuous innovation), patents and high-quality production ability," said Goldman analysts.
Goldman's net income projections for King Slide are 14% and 36% above Bloomberg consensus for 2024 and 2025, respectively. This optimistic stance is driven by higher revenue expectations from increased AI and general server shipments. The firm's analysis supports a positive view on the AI server segment's growth.
The competitive advantages of King Slide include strong innovation in product features, cost efficiency, tool-less installation, high customization, and automation. These factors contribute to higher industry gross margins, as rail kits constitute a minor component of the bill of materials for racking servers, making it less likely for clients to switch suppliers. Goldman Sachs anticipates that these attributes will lead to healthier competition dynamics in the industry.
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