Rena Smart is a leading domestic smart city heating enterprise. Benefiting from the two major trends of low carbon and intelligence in smart heating and the resonance of the ****, we expect the industry margin to rise and usher in a broad market space. Currently, the intelligent transformation of heating supply is in a stage of rapid development with a penetration rate of 1 to 10. Companies with strong software and hardware technical capabilities and the ability to provide one-stop solutions are expected to quickly accumulate project experience and reputation through good transformation energy-saving effects and customized capabilities, thereby rapidly expanding the market. The company has the triple advantage of technology+brand+intelligent manufacturing. It is expected that in the future, it will continue to strengthen long-term growth momentum through rich product lines, market expansion in provincial capitals, asset-light transformation of energy-saving services, production capacity release and scale effects of “Little Lighthouse” intelligent manufacturing plants. Considering the high certainty that the company's performance will grow in the next three years, we predict that the company's EPS for 2023/24/25 will be 1.96/2.61/3.48 yuan, respectively. Taking into account both the absolute valuation method and the relative valuation method, we believe that the company's reasonable market value in 2023 is 7.9 billion yuan, corresponding to the target stock price of 59 yuan. It was covered for the first time and given a “buy” rating.

Product+solution+service lead, and the pioneer of one-stop AI heating is moving forward. Rena Intelligence was founded in 2008. From products to overall solutions to digital energy management, the three-stage growth path is clear. The company's hardware products, such as modular heat exchange units and intelligent balance valves, accurately locate customer demand and pain points. The software system incorporates 8 categories and more than 50 AI algorithm model capabilities, and the transformation of energy-saving services into an asset-light operating model has a long-term layout. The company is committed to empowering the green, low-carbon and sustainable development of smart city heating systems in China. Currently, it has formed 7 major overall solutions, 224 patents and more than 200 customers. Benefiting from the continuous increase in demand for smart heating and energy-saving transformation, the company achieved revenue of 647 million yuan (YoY +22%) and net profit of 210 million yuan (YoY +17%) in 2022. Looking forward to the future, as the company continues to enrich its product line and continue to expand the national provincial capital market, the commissioning of new factories and scale effects have been shown one after another. We expect the company's performance to accelerate upward at an inflection point.

Trend+space+pattern are excellent, sailing the big blue ocean of smart city heating. Trend 1: Intelligent heating transformation is the general trend, and demand from various parties is resonating. Intelligent heating transformation has five major driving forces, which are immediately needed for aging, energy saving and carbon reduction, saving heating costs, relieving heat source tension, and improving comfort. National and regional policies are frequently emerging; trend 2: Emerging information technology empowers smart city heating. AI enables smart heating system prediction and decision-making; digital twins enable smart heating optimization design, intelligent scheduling, and emergency planning. The smart heating transformation has achieved remarkable results. According to the “Smart Heating Transformation and Economic Benefit Estimation of Secondary Pipeline Networks” (Qiu Ning, Zhang Kang, Ren Yan), judging from the pilot results of the second-level pipe network renovation in a residential area in North China, the thermal power company can save 14.8%, 15.0%, and 85.1% on heat consumption, electricity consumption, and water consumption, respectively, with cost savings of more than 10%. Reasonably assuming that the average unit price of smart heating remodeling/construction is about 30/50 (yuan/m2), respectively, we expect the intelligent heating transformation market space to reach 46.72 billion yuan in 2027, corresponding to a CAGR of 27% between 2022-2027. Currently in the rapid development stage from 1 to 10, companies in the industry can be divided into three categories. Companies with strong software and hardware technical capabilities and the ability to provide one-stop solutions are expected to quickly accumulate project experience and reputation through good transformation, energy saving effects and customized capabilities, thereby rapidly expanding the market.

Technology+brand+intelligent manufacturing have the upper hand, and the provincial capital is leading low-carbon heating in smart cities. 1) The company has always been technology-oriented and leads the industry in various aspects such as personnel, patents, R&D investment, and technical reserves. At the hardware level, the company has a complete industrial chain hardware layout and continues to enrich its product line; at the software level, the company has 13 core software systems and is the first in the industry to integrate automation (OT) +information technology (IT) +intelligence (AI) technology.

The company has accumulated massive data and algorithm advantages, and also cooperated with VITO, the Belgian National Research Institute, to launch the STORM AI intelligent controller. According to the company's 2022 annual report, applying its solutions can effectively reduce heat consumption and carbon emissions by 10% to 30%, and electricity consumption by 30% to 50%. 2) A broader target for the provincial capital market: On the basis of continuously consolidating brand advantages and existing customer resources, we have begun to focus on the provincial capital market and rely on our benchmark position and reputation to achieve rapid breakthroughs in business. 3) Actively expand production, have outstanding digital capabilities, and build a “small lighthouse” factory for intelligent manufacturing on its own. The company's fund-raising project construction period at the end of 2021 will be 2 years. After delivery, it will form a production capacity of 600 modular heat exchange units and 20,000 smart balance valves, which is equivalent to 2 to 3 times the current production capacity.

Through information systems such as SAP, PLM, CRM, MES and the introduction of intelligent production line hardware, the company realizes full automation, digitization and visual management of equipment and production processes, and ensures product stability and quality improvement.

Risk factors: The implementation of industrial policies falls short of expectations; macroeconomic pressure; seasonal business fluctuations; product and service innovation iterations fall short of expectations; the difficulty of supply chain management continues to increase and delivery pressure gradually increases.

Profit Forecast, Valuation and Rating: Rena Intelligence is a leading smart city heating company in China, and we expect it to continue to show high growth and profitability. Benefiting from the two major trends of smart heating, low carbon and intelligence, and the resonance of the ****, we expect the industry margin to rise and usher in a broad market space. Currently, the intelligent transformation of heating supply is in the 1-10 stage of rapid development. Companies with strong software and hardware technical capabilities and the ability to provide one-stop solutions are expected to quickly accumulate project experience and reputation through good transformation energy-saving effects and customized capabilities, thereby rapidly expanding the market. The company has the three advantages of technology+brand+intelligent manufacturing. We expect that in the future, the company will continue to strengthen long-term growth momentum through rich product lines, market expansion in provincial capitals, asset-light transformation, energy-saving services, and asset-light transformation, the release of production capacity in the “Little Lighthouse” intelligent manufacturing plant, and the scale effect. We forecast the company's EPS for 2023/24/25 to be 1.96/2.61/3.48 yuan, respectively. In terms of valuation, we comprehensively valued DCF (giving 2023E target share price of 59 yuan/share) and comparable valuation PE (combined with comparable company valuation levels, we gave the company 2023E 30x PE, corresponding to 2023E target share price of 59 yuan/share), gave the company a target share price of 59 yuan/share, corresponding to a target market value of 7.9 billion yuan per share. Covered for the first time, giving it a “buy” rating.