Investment points:
Leading domestic compressor motor manufacturer, supporting leading downstream companies. The company's main products are refrigeration compressor motors. The main products are divided into two categories: refrigerator compressor motors and commercial compressor motors, which provide production support with well-known domestic and foreign compressor manufacturers. The number one customer in 2016 was Huayi Compression and its subsidiaries, accounting for 73.16% of the company's revenue. The company indirectly supports well-known domestic and foreign refrigerator brands such as Haier, Midea, Meiling, Bosch, Siemens, Electrolux, GE, etc., as well as commercial refrigeration equipment manufacturers such as Gree, York, Carrier and Johnson Controls.
Variable frequency compressor motors benefit from downstream consumption upgrades. The new mandatory national efficiency standard “Household Refrigerator Electricity Consumption Limits and Energy Efficiency Levels” was officially implemented on October 1, 2016. The output of variable frequency refrigerators in 2016 was 7.118 million units, an increase of 40.40% over the previous year, and the frequency conversion ratio increased from 6.93% in 2015 to 9.54%. The 2015 edition of China's household refrigerator industry technology roadmap issued by the China Household Appliances Association also clearly sets out the industry target of 30% of the inverter refrigerator market in 2020 and 50% in 2025. Inverter compressor motors will usher in rapid growth. In 2016, the company's overall sales volume of refrigerator motors was 8.2861 million units, an increase of 7.44% over the previous year. Among them, inverter refrigerator compressor motors rose from 266,700 units to 1,1794 million units, an increase of 342% over the previous year, accounting for 14%. The company raised a project with a production capacity of 1.2 million units of inverter refrigerator compressors to support existing customers such as Cibella, Huayi (Jingdezhen), Huayi (Jingzhou), and Qianjiang Refrigeration, as well as future new customers. After delivery, the company's product structure will be optimized and downstream support will be increased.
The company is developing commercial compressor motor business. The threshold and technical barriers for light commercial refrigeration compressors are high, and the first-mover advantage for overseas compressors is obvious. In recent years, domestic compressor motor companies have gained the opportunity to enter the supply team of international compressor manufacturers and gradually expand supply by relying on cost advantages. Upgrading domestic consumer demand and improving the cold chain have driven the growth of the light commercial compressor market. The Spanish Cubigel company supported by the company's 2017 sales target for young commercial compressors is 4.5 million to 5 million units, driving the company's 2017 H1 sales volume to increase 115.68% year-on-year . Heavy compressors are mainly used in unitary air conditioning units, multi-link central air conditioning units, and household heat pump units. Domestic central air conditioning is picking up, and domestic central air conditioning revenue increased 11.36% year-on-year in 2016. Among them, the multi-line growth rate was 21.3%, and the unit growth rate was 16.4%. The company has established long-term and stable cooperative relationships with Danfoss and Bristol. In 2017, H1 heavy commercial compressor motor sales increased 51.53% year-on-year.
Covered for the first time, giving it an “increase in holdings” rating. Considering the rapid growth of domestic high-end inverter refrigerator compressors and the growth of commercial compressors brought about by central air conditioning, we expect the 2017-2019 profit growth rates to be 47.40%, 32.70%, and 38.20%, respectively, and the 2017-2019 EPS is expected to be 0.68 yuan, 0.90 yuan, and 1.24 yuan respectively. As a leader in the domestic compressor motor industry, the company has long-term stable cooperation with major customers. Taking into account the company's sub-IPO attributes, the company will be given a reasonable valuation of 58 times in 2018. The first coverage gives an “increase in holdings” rating.
Investment cases
Investment Ratings and Valuations
Covered for the first time, giving it an “increase in holdings” rating. Considering the rapid growth of domestic high-end inverter refrigerator compressors and the growth of commercial compressors brought about by central air conditioning, we expect the 2017-2019 profit growth rates to be 47.40%, 32.70%, and 38.20%, respectively, and the 2017-2019 EPS is expected to be 0.68 yuan, 0.90 yuan and 1.24 yuan respectively. As a leader in the domestic compressor motor industry, the company has long-term stable cooperation with major customers, and long-term stable cooperation with major customers. Taking into account the company's sub-IPO attributes, we will give the company a reasonable valuation of 58 times in 2018.
Key Assumptions
Benefiting from consumption upgrades, the inverter refrigerator market accounted for 30% in 2020, driving the company's variable frequency compressor motor business to grow rapidly;
Supporting major customers, light commercial compressors are shipped, and production capacity is fully funded; heavy commercial compressors develop new customers and achieve full production capacity.
It's different from what the public knows
The market believes that the company's customer concentration is too high and that there is a high risk. We believe that the company's downstream refrigerator compressor industry output is concentrated among several industry leaders, that the company has achieved stable cooperative relationships with major customers, and that it can enjoy the dividends brought about by the increase in the concentration of the leading downstream compressor market.
The market believes that the sales volume of the refrigerator industry is sluggish and that the growth of upstream compressor motors is insufficient. We believe that the increase in the proportion of inverter refrigerators brings opportunities for rapid release of variable frequency compressor motors; with the overall improvement of the technical capabilities of domestic compressor motor companies, domestic motor manufacturers will participate in the competition in the commercial compressor motor market, and the company will directly benefit from supporting major downstream customers.
The catalyst for stock price performance
The company's performance exceeded expectations due to the rapid rise in the ratio of inverter and commercial compressor motors.
Core hypothesis risk
Prices of raw materials are rising; customer concentration is high.
