Recently, we continue to strengthen the relevant recommendations of the home security building, we believe that, on the one hand, the completion is expected to lead to the growth of large orders, and the structural opportunities for real estate pattern optimization are highlighted; on the other hand, with the gradual landing of real estate support policies, the financial pressure of real estate enterprises is expected to be alleviated, and the overall upstream and downstream development of the industry may tend to be benign.

As a leader in the field of safety doors and locks, the company has outstanding advantages in bulk engineering channels, and equity incentives demonstrate long-term development confidence. The company adopted various ways to strengthen the strategic coordination with the head housing enterprises, supported engineers and dealers to open up project orders, and set up direct marketing teams to maintain cooperative relations with major high-quality real estate developers. It was rated as the first place in the steel door category of the first choice supplier of real estate, and vigorously expanded the category of cooperative products. 22H1 added cooperative intelligent lock products on the basis of entering the door, and engineering customers have begun to place orders one after another. The industry is at a relative bottom in 22 years, and the company is expected to accelerate its reversal in 23 years. The company issued its first equity incentive plan for listing in June 22, with a target income growth of no less than 56% over 21 years and a net profit growth of no less than 110% over 21 years.

Under the pressure of the industry, small and medium-sized enterprises are expected to accelerate clearance, and the competition pattern will be gradually optimized. According to our estimation, the scale of China's door-to-door industry is expected to be about 40 billion in 25 years. Except for some well-known brands, it is mainly small local factories with low industry concentration, among which the Yongkang area where the company is located is the concentrated area of security door industry in our country.

According to the website of the Yongkang Municipal people's Government, the annual output of Yongkang Safety Gate is about 30 million tons, accounting for about 70 percent of the national output. The price of steel, the main raw material, is high in 21 years, and the completion / sales data of commercial housing in 22 years has continued to decline in double digits compared with the same period last year. We believe that under the pressure of the industry, small and medium-sized production capacity may gradually clear out, withdraw from the competition, or gradually become a contract factory of the head brand. The industry pattern is expected to be optimized.

The company is expanding against the trend to increase the degree of concentration, the production capacity is accelerated climbing and the scale effect is highlighted. The company will be able to put into trial production in 21H2, and 23 new automation production lines will be added in the second phase of 22H1 Changtian Factory. We expect that the production capacity will be gradually released in 23 years. The company will orderly promote capacity construction and lay a capacity foundation for share improvement, reflecting firm confidence in development. In the early stage, due to the corresponding projects under construction transferred to fixed assets, and depreciation, the profit end is under pressure, we believe that in the future with the increase in production, unit amortization may be significantly reduced to enhance profitability, the advantage of cost scale is prominent.

In the future, factories will improve efficiency and free up gross profit space. In terms of cost gross profit, Wang Li Changtian Intelligent Base won the title of Yongkang's first batch of "future factories". It is expected that after it is officially put into production, labor will be reduced by 80%, operating costs will be reduced by about 15%, and the product upgrade cycle will be shortened by about 33%. The product quality of intelligent manufacturing is improved and stable, and the production efficiency and competitiveness are greatly improved. with the improvement of capacity utilization, the scale effect is expected to be released gradually.

Long-term optimistic about customer structure adjustment and optimization, business model tends to be healthy. On the one hand, the company is actively docking with more qualified engineering customers, and we expect new customers to gradually enter the mature volume stage, and the scale is expected to increase with Baojiao Building Catalysis for 23 years; on the other hand, the cooperation of existing customers is stable, and continue to expand the category of cooperative products. In addition, the company has strong risk control ability. under the engineering mode, except for the situation in which the company sells directly and is not responsible for installation and a small number of engineering customers who are responsible for installation by the company, the rest of the engineering customers are installed by the distributor or the third party introduced by them. the company will arrange delivery only after the dealer deducts the installation service fee according to the contract amount and pays the full project deposit to the company. We believe that with the increase in the share of central state-owned enterprises, high-quality private enterprises and the clearing of industry risks, the company is expected to continue to expand its business territory.

The extension of the category of intelligent door locks is expected to open the space for development. According to Oweyun data, the penetration rate of intelligent locks in China is less than 9% in 2021 and is expected to exceed 11% in 2022. Compared with the market penetration rates of 80% and 60% in Japan and South Korea, China's intelligent door lock market is still in the early stages of development and has a large market space. The income of 22H1 Wang Li intelligent lock is 67.0935 million yuan, accounting for about 7% of the total revenue. Engineering cooperation takes the initiative to expand intelligent locks and other categories to enhance strategic coordination, retail business online and offline, and the growth prospect is promising.

Profit forecast and valuation: we are optimistic that the optimization effect of the company's customer structure appears, the volume of high-quality strategic customers is superimposed with recent policy catalysis, and the business is expected to improve gradually, but considering the decline in new home sales over the same period last year, we adjust our profit forecast. It is estimated that the 22-24 year return net profit of the company will be 1.7 million (the original value is 3.4 million), and the corresponding PE will be 26X/16X/13X. Maintain the "overweight" rating.

Risk tips: increased competition in the industry; capacity release is not as expected; sales and completion of new homes are not as expected.