Incident: On April 27, 2023, the company released its 2022 annual report, the report for the first quarter of 2023, and an announcement on the use of overraised capital to invest in the construction of new projects. In 2022, the company achieved revenue of 944 million yuan, an increase of 25.66% over the previous year, achieved net profit of 90 million yuan to the mother, a decrease of 17.85% over the previous year, and achieved net profit of 80 million yuan after deduction, a year-on-year decrease of 19.79%. The company achieved revenue of 276 million yuan in the first quarter of 2023, an increase of 44.38% over the previous year, achieved net profit of 21 million yuan, an increase of 8.47% over the previous year, and achieved net profit of 19 million yuan after deduction, a decrease of 2.68% over the previous year.

Comment:

Revenue continued to grow, net profit was under pressure in the short term, and continued to develop downstream customers. According to the company's 2022 annual report, we estimate that the company achieved operating revenue of 243 million yuan in the fourth quarter of 2022, an increase of 17.11% over the previous year, and an increase of 3.35% over the previous quarter; in the fourth quarter, it achieved net profit of 101 million yuan, a year-on-year decrease of 97.46% and a decrease of 98.35% over the previous month. Revenue and net profit returned to the mother increased in the first quarter of 2023, mainly due to increased sales of the company's products in the new energy industry.

The company's revenue continued to grow in 2022, mainly due to the company seizing new development opportunities in the new energy, intelligent manufacturing and other industries, and the increase in product sales in the photovoltaic and lithium battery industries; Guimu's net profit declined year-on-year, mainly as follows:

1) The company's downstream customers are concentrated, and the prices of upstream raw materials are rising. The company's downstream customers are concentrated in the new energy industries such as photovoltaics and lithium batteries. In order to quickly develop the market, the selling price of the company's products has been reduced. At the same time, the gross margin of the company's products has declined due to rising prices of raw materials and the impact of product upgrades. 2) The company insists on investing in R&D to quickly seize the market. The company is in a period of rapid development. In order to seize market opportunities, seize market share, continuously improve technological innovation capabilities and R&D levels, and increase investment in market sales and R&D, leading to an increase in sales and R&D expenses.

In 2022, the company continued to increase its market development efforts, actively lay out the new energy market, expand new customers, and provide high-quality products and services. By the end of 2022, the company had replaced domestic production and formed customized solutions in various downstream industries such as 3C electronics, lithium batteries, logistics, industrial robots, etc., covering many industry leading enterprises such as IFF, Ningde Times, SF Holdings, Longji Co., Ltd., Jiejia Weichuang, and Pioneer Intelligence. We believe that the company is in a period of rapid growth. Continued investment in R&D will help enhance product competitiveness and increase market share. In the future, with product iteration, product gross profit margin and customer coverage are expected to increase, and profitability is expected to gradually recover.

In 2022, the company achieved gross sales margin of 30.44%, down 6.03 percentage points from the previous year, and achieved a net sales profit margin of 9.20%, down 5.21 percentage points from the previous year. The decline in gross margin is mainly due to the reduction in the price of the company's products, the increase in the price of upstream raw materials, and product replacement. By product, servo systems are the company's main product, and PLC product revenue has increased rapidly. In 2022, the company's servo products achieved revenue of 758 million yuan, a year-on-year increase of 14.98%, a gross profit margin of 29.47%, a decrease of 9.55 percentage points over the previous year, the company's PLC products achieved revenue of 121 million yuan, an increase of 203.71% over the previous year, achieved a gross profit margin of 43.79%, an increase of 9.50 percentage points over the previous year, and achieved revenue of 23.51 million yuan, a year-on-year increase of 127.39%, a year-on-year increase of 14.22 percentage points. We believe that the share of PLC revenue from the company's high-value products is expected to gradually increase, the revenue structure is expected to be continuously optimized, and the comprehensive gross margin is expected to improve in the future.

The company achieved gross sales margin of 28.99% in the first quarter of 2023, down 3.78 percentage points from the previous year, an increase of 5.33 percentage points over the previous month, and achieved a net sales profit margin of 7.77%, a decrease of 2.22 percentage points over the previous year, and an increase of 8.07 percentage points over the previous year. Gross sales margin and net interest rate recovered month-on-month in the first quarter of 2023. In the future, as high-value-added products and solutions are released, the company's gross margin level may continue to rise.

The company is in a period of rapid growth and insists on sales and R&D investment

The company's ability to control expenses is excellent, and the sales expense ratio and management expense ratio have all declined. In 2022, the company achieved sales expenses of 79 million yuan, a sales expense ratio of 8.37%, a year-on-year decrease of 0.64 percentage points, management expenses of 29.28 million yuan, and a management expense ratio of 3.10%, a year-on-year decrease of 0.53 percentage points. In the first quarter of 2023, the company achieved sales expenses of 20.35 million yuan, a sales expense ratio of 7.39%, a year-on-year decrease of 2.43 percentage points, management expenses of 7.47 million yuan, and a management expense ratio of 2.71%, an increase of 0.30 percentage points over the previous year. The company is in a period of rapid growth. While strengthening the development of downstream markets, it has maintained a low cost rate and has excellent cost control capabilities.

The company insists on increasing investment in R&D, speeding up product updates and iterations, and enhancing competitiveness. In 2022, the company invested 105 million yuan in R&D, an increase of 20.47% over the previous year. The R&D expenditure rate was 11.10%, a decrease of 0.48 percentage points over the previous year. The company invested 31.86 million yuan in R&D in the first quarter of 2023, an increase of 54.31% over the previous year. The R&D expenditure rate was 11.56%, an increase of 0.74 percentage points over the previous year. By the end of 2022, the company had formed a “shared basic platform+business product center” R&D structure. The R&D center had 4 technology centers (including product R&D center, basic technology research center, application technology service center, engineering center) and 2 support platforms (including R&D resource support platform, business management support platform), and set up multiple R&D centers in Longyou, Hangzhou, Shenzhen, Dalian and Suzhou to continuously improve product development efficiency, shorten product launch cycles, and meet the product and service needs of customers in various vertical fields. The company successfully independently designed and developed industrial control chips and encoders, and the competitiveness of servo products and PLC products continued to rise.

Continuing investment in R&D and investing in the construction of an industrialization base for efficient precision industrial drives, the product range is expected to continue to be enriched. According to the company's announcement, the company will use overraised capital to build R&D and industrialization projects for efficient industrial transmission systems and precision transmission components.

If the construction project successfully reaches production: 1) In the future, the company's inverter products are expected to be upgraded, the inverter product system is continuously improved to improve product competitiveness, and the company's revenue structure is expected to be further optimized; 2) The company's motor product categories and forms are expected to expand, product cost performance and energy efficiency ratio will improve, filling the business gap in the field of high-efficiency industrial motors and opening up new growth space; 3) In the context of intensifying trade frictions and industrial autonomy, safety and control, the company is expected to increase the market share of CNC machine tools and basic equipment manufacturing to achieve spindles and lead axes in the future Rails Domestic replacement of linear motion transmission parts such as screws, etc.

With servo system+PLC as the core, it has autonomous automation chips. The company's products with broad replacement space cover the control layer, driving layer, and executive sensing layer in the field of industrial automation. It has core industrial control products such as servo drives, servo motors and encoders, inverters, PLCs, etc. The main products, servo systems, are at the advanced level in China. At the same time, they are actively laying out PLC products and expanding upstream and downstream of the industry chain, involving industrial control chips, sensors, high-end precision CNC machine tools, etc., and have achieved coverage of major products at all levels of industrial control automation equipment. According to data from MIR Rui Industrial, in 2020, the company's share of the servo system and PLC market was 3% and 0.44% respectively. Compared with leading foreign manufacturers, the market share is still low. With the continuous upgrading and iteration of the company's Y series servo systems and M-type PLC products, there is broad scope for domestic substitution.

Profit Forecasts and Investment Ratings

As a leading industrial automation control enterprise in China, with servo systems and PLC as the core, the company has mastered the core technologies of many servo products such as magnetic and optical knitting, as well as autonomous controllable chip capabilities. It has major customers in the lithium battery & photovoltaic & robot industry. Against the backdrop of autonomous safety and control, we continue to be optimistic about the company's long-term growth space. The company's net profit for 2023-2025 is estimated to be 158 million yuan, 221 million yuan, and 304 million yuan respectively. The corresponding PE is 34.87 times, 25.02 times, and 18.15 times, maintaining the “buy” rating.

risk factors

Market competition risk, raw material price fluctuations and import dependency risk, macroeconomic situation risk