In the first three quarters of 2022, the company achieved revenue of 820 million yuan (year-on-year + 38.9%) and net profit of 180 million yuan and 170 million yuan respectively, + 41.0% and + 54.5% respectively. In the single quarter of 22Q3, the company's revenue and return net profit increased by 42.4% and 65.7% respectively over the same period last year, accelerating growth compared with the same period last year.

The company is expected to gradually release production capacity through fund-raising projects and the integration of M & A resources to meet downstream demand. We are optimistic about the company's long-term development prospects and maintain its "buy" rating.

22Q3's single-quarter operating performance is the best in history. (1) single-quarter revenue and profit: in the single quarter of 22Q3, the company achieved revenue of 320 million yuan (year-on-year + 42.4%), and non-return net profit of 78.9 million yuan and 77.69 million yuan respectively, + 65.7% and + 83.7% respectively. The company's performance continues to accelerate, with single-quarter revenue and performance reaching an all-time high. (2) Gross profit margin: the company's comprehensive gross profit margin was 36.4% in the first three quarters (unchanged from the same period last year) and 37.6% in the third quarter (year-on-year and month-on-month increase in 2.2pcts and 0.91pct respectively). We judge that it may be related to the decline in the price of raw materials (pig iron, scrap, resin, etc.), the devaluation of RMB, the company's price adjustment to some customers and other factors. (3) expenses: in the first three quarters of 2022, the company's sales, management and R & D were 6 million, 46 million and 44 million yuan respectively, and sales, management and R & D expenses increased by 5.7%, 22.5% and 13.2% respectively compared with the same period last year, all of which were lower than the income growth rate. Scale effect appears. In the first three quarters, the financial expenses were-20 million yuan (compared with-3 million yuan in the same period last year), mainly due to the increase in exchange earnings since the beginning of this year.

Overseas demand is strong, and the company's capacity expansion is orderly. From the point of view of the demand side, the compressor field, the downstream commercial compressor field of the company has benefited from the recovery of global demand from leading manufacturers in the field of compressors such as Johnson Automation and Ingersoll Rand, as well as the trend of supply chain transfer to the Asia-Pacific region, and the demand has maintained rapid growth. the market share of major customers may increase steadily. In the field of construction machinery, the export of construction machinery is booming. According to the statistics of China Construction Machinery Industry Association, 10667 excavators were exported in September 2022 (an increase of 73.3% over the same period last year), and 80306 excavators were exported from January to September in 2022 (an increase of 70.5% over the same period last year). In addition, global construction machinery giant Caterpillar Inc 22Q3 achieved revenue of US $15 billion (year-on-year + 21.05% in a single quarter), while agricultural machinery giant Deer also achieved high revenue, with revenue of US $13 billion (year-on-year + 24.8%) in May and July 2022, indicating that the manufacturing industry in Europe and the United States is booming. The company has a solid strategic cooperation relationship with Caterpillar Inc, which won the Caterpillar Inc Best Cooperation Model Award in 2021, and the company is expected to fully benefit from customer demand boom and supply chain transfer; from the supply side, according to the company's investor relations activity record table, the "new 34800 sets of high-precision machinery parts technical renovation project" is progressing smoothly and will be fully put into production this year. The company also makes full use of Liyuan Jinhe casting capacity index to establish resin sand casting capacity. In addition, the "annual production and construction project of 14600 sets of large-scale high-precision mechanical parts" is expected to be put into production by the end of 2023, which will fundamentally solve the capacity bottleneck.

The acquisition of Liyuan Jinhe and shareholding Liyuan hydraulic is still in the period of integration, and there is broad room for follow-up improvement. (1) excluding the factors of merger and acquisition of Jinhe and equity participation of Lianyuan hydraulic, the operating performance of Liande is even better: in the first half of 2022, Liyuan Jinhe lost 7.6 million yuan, and Liyuan hydraulic caused a drag of about 4.2 million yuan on the company's statements in the form of long-term equity investment income. We estimate that from January to September this year, Liyuan Jinhe and Liyuan hydraulic will cause a drag of nearly 20 million yuan on the statements of listed companies. Excluding the influence of merger and acquisition of Liyuan Jinhe and equity participation of Liyuan hydraulic, the company's net interest rate may be close to 25% from January to September this year. (2) the follow-up integration of Liyuan Jinhe and Liyuan hydraulic is worth looking forward to: Jinhe's existing foundry index is about 30,000 tons, and the capacity utilization rate is less than 60% at the end of 2021. After purchasing equipment for upgrading, the company is expected to make full use of foundry capacity indicators to alleviate capacity bottlenecks. In terms of hydraulic business, after the company's capital increase, Suzhou Liyuan continues to cultivate hydraulic business, strengthen cooperation with Xugong Machinery, Zoomlion Heavy Industry Science and Technology, Caterpillar Inc and other key customers, carry out technology upgrading iterations, and expand the proportion of high-end hydraulic parts. actively expand motors and hydraulic valves and other new products, profitability recovery is worth looking forward to, long-term growth space is broad.

Launch equity incentives to stimulate team cohesion. In September 2022, the company launched a restricted stock incentive program, which intends to grant 1.256 million restricted shares (0.52% of the total share capital) to 53 people (mainly middle managers and core business technicians) through the targeted issuance of A shares. The grant price is 10.98 yuan per share.

The incentive program is divided into two unrestricted sales periods (18,30 months after the completion of grant registration and 30,42 months after the completion of grant registration), both of which are 50%.

Risk factors: the risk of lower-than-expected performance of mergers and acquisitions and participating companies; the risk of sharp fluctuations in raw material prices; the risk of capacity expansion that is not as expected; the risk of downward macroeconomic growth; the risk of losing important customers; the risk of intensifying trade disputes between China and the United States.

Profit forecast, valuation and rating: the company is a leading "casting + machining" integrated manufacturing enterprise with outstanding competitive advantages. The company through mergers and acquisitions and fund-raising projects to actively expand production, is expected to fully meet the strong demand downstream, sustained and rapid growth. Taking into account the strong downstream demand, the company's capacity expansion and the appearance of scale effects, we raise the company's 2022-24 net profit forecast to 260 million, 340 million and 480 million yuan (the original forecast is 230 million yuan, 300 million yuan and 400 million yuan), and the current price is 23 times, 17 times and 12 times PE respectively. The company is expected to achieve rapid performance growth in the next two years. Maintain a "buy" rating.