Key points of investment

1. Leading manufacturer of motion control, vertical integration continues to cultivate the industry

① Since its establishment, the company has continued to focus on core technology research and development of motion control and intelligent manufacturing for more than 20 years, forming autonomous and controllable technical systems such as motion control, servo drive, multi-dimensional sensing, industrial field networks, and industrial software.

② The company takes motion control technology as the core to form a product system of core components, systems, and complete machines for motion control. Among them, the core component category is the company's business foundation and main source of revenue since its establishment; system and machine products are vertical integration strategies implemented by the company focusing on specific applications and based on solving pain points in special industries, and are key future business layout.

③ In 2019-2022, the company's revenue increased from 248 million yuan to 348 million yuan, with a compound growth rate of 12.06%, thanks to the overall good growth trend of major equipment manufacturing customers.

2. The overall development trend of the motion control industry is improving and continues to benefit from the localization of high-end equipment ① The market size of China's motion control industry continues to grow. In 2019, the total market size of motion control systems in China was about 42.5 billion yuan. According to a research report published by the international market research agency Marketsand Markets, the global smart manufacturing market was US$24.7 billion in 2020 and is expected to grow to US$384.8 billion by 2025, with a compound growth rate of 12.4%. Motion control is the core component of intelligent manufacturing. Based on the CAGR of the intelligent manufacturing market, assuming a compound growth rate of 10% in 2019-2022, China's motion control system market is close to 57 billion yuan in 2022, and will reach about 62.2 billion yuan in 2023.

② As labor costs rise and demographic dividends weaken, there is an urgent need for transformation and upgrading of China's manufacturing industry. “Machines replace people” has become an inevitable development direction, and the development of motion control and intelligent manufacturing industries has a long-term internal driving force. According to data from the National Bureau of Statistics, the proportion of China's working-age population fell from 69.2% in 2012 to 63.4% in 2020, with an 8-year decline of 5.8 percentage points. Corresponsively, the average annual wage in China's manufacturing industry increased from 46,400 yuan in 2013 to 92,500 yuan in 2020, with a compound annual growth rate of 8.99%.

③ The import substitution space for high-end equipment is broad, which is expected to promote the development of the domestic motion control industry. The company's downstream includes high-end equipment fields such as semiconductor equipment, industrial robots, high-end CNC machine tools, laser precision cutting, 3C automation and inspection equipment. In terms of semiconductor manufacturing equipment, in 2020, the market size of China's semiconductor equipment industry reached 18.720 billion US dollars, and the 2009-2020 CAGR was 31.25%; in 2019, the localization rate of semiconductor equipment in China was about 18.8%, of which the localization rate of integrated circuit equipment was only about 8%. In terms of industrial robots, in 2020, China sold 156,000 units of industrial robots, and the CAGR reached 18.24% in 2014-2020; in 2017, the localization rate of industrial robots in China was about 29%, with the localization rate of high-end robots being 17.5%. In terms of CNC machine tools, China's CNC machine tool market is about 412.8 billion yuan in 2020, and is expected to grow to 572.8 billion yuan by 2024, and the CAGR is about 8.53%; in 2018, the localization rate of low-grade CNC machine tools in China is about 82%, the localization rate of mid-range CNC machine tools is about 65%, and the localization rate of high-end CNC machine tools is only about 6%. In terms of laser equipment, the compound annual growth rate of sales revenue in China's laser equipment market reached 16.16% in 2014-2022; currently, the localization rate of high-end laser equipment is only 10%. In the context of the US and other countries increasing restrictions on the development of high-end manufacturing in China, domestic high-end equipment has ushered in historical opportunities for import substitution. As a core component of high-end equipment, motion control is expected to benefit from the development process of increasing the localization rate of high-end equipment.

3. The company has strong R&D strength and independent innovation ability, perfect industrial layout, and obvious competitive advantage ① The company has strong R&D strength and has won important scientific research awards in the industry many times. As of December 31, 2022, the company has 56 invention patents, edited 9 national standards, and participated in compiling 10 national standards and 2 local standards. The company won the second prize of the National Science and Technology Progress Award (2016), the first prize of the Guangdong Machinery Industry Science and Technology Award (2016), the first prize of the China Machinery Industry Science and Technology Award (2017), and the first prize of the Shenzhen Science and Technology Progress Award (2019).

② The company has strong independent innovation capabilities to create a “core technology platform” for equipment manufacturing with a complete system. The company has long been deeply involved in motion control technology, including core technologies such as servo drive technology, multi-dimensional sensing technology, industrial field network technology, and industrial software technology, and has accumulated deep basic and fundamental innovations in the field of motion control technology. With years of focus, refinement, innovation and development concepts, the company has opened up technical capabilities from underlying common technology to “optical-mechatronics, software and hardware integration” product development and design, to industry application system solutions, and has built a “core technology platform for equipment manufacturing” based on this, which can output advanced manufacturing technology covering key aspects of equipment manufacturing such as “perception, control, decision-making, execution, and industrial interconnection” to help domestic breakthroughs and digital, networked, and intelligent transformation and upgrading of equipment manufacturing. In addition, the company also continues to improve the industrialization of core components such as high-precision encoders, special motors, and multi-dimensional sensors, and promote the deep localization of core components of motion control systems.

③ The company has a broad customer base and a structured industrial layout. The company has continued to be a technical enabler in the equipment manufacturing industry for more than 20 years. It has become a long-term partner in the industry chain with a group of entrepreneurs dedicated to domestic replacement of advanced equipment, and has also become a reliable partner for innovative equipment startup teams in emerging fields to complete technical research and team training. The company has long served more than 2,000 equipment manufacturing customers in various industries. A wide range of downstream customer groups have provided the company with a full range of technical application scenarios and real-time dynamic knowledge feedback, which helps the company maintain its technological leadership and is the basic foundation for the company's long-term stable development. The company has formed a unique industrial system layout around the field of intelligent manufacturing. As of December 31, 2022, in addition to the entities to be listed, the company selected industry, technology and capital partners and invested in 20 industrial chain enterprises. The industrial layout aims to expand the technical service radius, deepen system-level solutions for vertical industries, incubate and cultivate more startups for intelligent manufacturing in China.

4. We expect the company to achieve net profit of 0.57, 0.78, and 96 million yuan in 2023-2025, respectively, with year-on-year increases of 6.83%, 36.16% and 23.26%, respectively.

5. The company's reasonable value range per share is 9.32-10.46 yuan, and the static price-earnings ratio range corresponding to net profit due to mother in 2022 is 70.00-78.54 times. We expect the market value of the company to be in the range of 37.30-4.186 billion yuan after issuance. Assuming no over-allotment options are used, the value per share will be 9.32-10.46 yuan, and the price center will be 9.89 yuan. The price-earnings ratio for the value range per share corresponding to net profit without prior deduction in 2022 is 70.00-78.54 times, and the price-earnings ratio corresponding to net profit deducted from non-backward in 2022 is 86.10-96.61 times. The price-earnings ratio corresponding to the projected net profit without prior return to mother in 2023 is 65.52-73.52 times, the price-earnings ratio corresponding to the projected net profit deducted in 2024 is 48.12-53.99 times, and the price-earnings ratio corresponding to the projected net profit without prior return to mother deducted in 2025 is 39.04-43.81 times.

5. Risk warning: risk of main business revenue falling short of expectations; risk of profit forecasting assumptions not being established; risk of loss of technical talent and shortage of high-quality personnel; risk of reliance on overseas supply of key raw materials such as chips; risk of increased market competition; risk of valuations higher than the industry average and the average of comparable companies.

Investors should make their own investment decisions and bear their own investment risks.