Based on the traditional oil pump business, actively explore the new energy circuit: 1) The company is a powertrain pump leader and is deeply involved in the global market: the company was founded in April 2007, and the engine oil pump/transmission oil pump ranked first in the country. The company has production R&D centers in many parts of the world. Traditional business customers cover well-known automakers (GM, Ford, SAIC) and component suppliers (BorgWarner); 2) Actively transforming the new energy sector: the company accelerates the development of electronic components (electronic components such as electric drive lubrication and cooling systems, new energy thermal management systems and intelligent braking systems) pumps, Electronic water pumps, electronic vacuum pumps and electric drive system components), the project progressed smoothly; 3) Performance entered a recovery period, and profitability continued to recover: after 2021, the company's revenue entered a recovery period (achieved revenue of 1.5 billion dollars in 2021, +23% year on year), and profitability continued to recover (non-net interest rate deducted from the first 2Q was 5.4%, close to an all-time high).

High demand for electronic pumps: the future development of electronic oil pumps & electronic water pump drive companies. 1) The industry has sufficient growth momentum: the current market space for electronic oil pumps/electronic water pumps is estimated to be 2.8 billion/4.8 billion yuan respectively, and CAGR is expected to reach 25%/15% respectively in the next 3 years, which is the core driving force for the growth of the electronic pump industry; 2) The company's electronic oil pumps have been successfully mass-produced, and industry leaders have technical advantages: the company's two platform-based electronic oil pump products, SEOP150 and SEOP450, are already mass-produced, worth about 250-300 yuan compared to mechanical oil pumps, an increase of about 150-200 yuan over mechanical oil pumps, which are already being developed by the company. The electronic oil duplex pump has broken the technical barriers that foreign manufacturers have held for a long time. Under the trend of motor oil cooling and high-pressure fast charging, the company is expected to fully enjoy the industry's growth dividends as an oil pump leader; 3) Acquire the Warner Shenglong water pump business and lay out electronic water pumps and integrated products: the number of bicycle accessories (2-5 units) and value (about 200 yuan/piece) of electronic water pumps (1 bicycle support, about 100 yuan) have been greatly improved. The company is developing medium to high power electronic water pumps, which are technically difficult, and is developing water pumps. Products integrated with water valves are expected to be available in the future Integrated supply capabilities.

Electric drive system: create differentiated electric drive products and open up a new growth curve for the company. 1) Electric drives have always become an industry trend, and performance differentiation builds competitive advantage: The three-in-one integrated electric drive system has advantages such as space saving and high energy efficiency, and has gradually become the mainstream of the industry. Currently, there are many market participants and the pattern is scattered. As a third party supplier, creating a core advantage and seeking performance differentiation has gradually become an important means to occupy market share; 2) Establishing Shenglong New Energy to build a system-level solution provider: In 2022, the company established Shenglong New Energy to lay out electric drive products, which already has the ability to develop products such as three-in-one assemblies, speed reducers, controllers, etc.

Investment suggestions: 1) In the short term, the production capacity of the company's engine oil pump, transmission oil pump and camshaft projects was released on a large scale, and the main business repair was highly certain; 2) In the medium term, the company's electronic oil pump projects were mass-produced one after another and continued to receive orders. The electronic pump business injected new momentum into the company; 3) In the long run, electric drive system products are expected to further expand the scale of the company's performance. Combining the restoration of the company's main business and the certainty of new business growth, we expect the company's revenue to be 16.31, 19.66, and 2,501 billion yuan respectively in 2022-2024, with year-on-year growth rates of 8.9%, 20.5%, and 27.2%, respectively. The net profit of the parent company is 1.10, 151, and 222 million yuan respectively. The year-on-year growth rates are 7.1%, 37.2%, and 46.9%, respectively. PE corresponding to the current stock price is 2.2, 16 and 11 respectively. The first coverage gave an “increase in holdings” rating.

Risk warning: The expansion of the company's electronic oil pump market fell short of expectations, the mass production process of the electronic oil pump project fell short of expectations; sales volume of traditional fuel vehicle customers fell short of expectations, and the capacity utilization rate of the mechanical pump business fell short of expectations; overseas project development fell short of expectations.