Recommended logic: 1) Traditional industries explore new space: Overseas home appliance frequency conversion demand is high and space is large, the company's share of overseas revenue has increased to 31%, and the market layout is accelerating. 2) Emerging industries enjoy demand dividends: With the accumulation of industrial control segments, the company is expanding wind power converters, small electric trains, etc., and is estimated to have a market space of 7.3 billion yuan/40.5 billion yuan in 25 years, respectively. The company is bound to core customers, and orders are full. 3) Profit reached an inflection point: The shortage of raw materials on the industry side was alleviated, the company side product structure was optimized, the scale effect was reduced, and the 23Q1 net interest rate was +4pp year on year.
An established industrial power supply company, striving to enter the communication & optical storage and charging business into the fast track. The company expanded from a single display power supply product to medical, communications, optical storage and charging modules, etc., and entered the fast track. Communications: It is estimated that by 2025, China's communications/server power supply market will be about 218/91 billion yuan. The company is deeply tied to leading overseas companies such as Cisco, and is also benefiting from domestic substitution of server components, gradually gaining entry from domestic manufacturers. Optical storage and charging: The industry maintains a high boom. The company has a rich product range. It is positioned to serve B-end customers. It has cooperated with downstream core customers such as TBEA, and the integrated development of optical storage and charging can be expected.
Demand for frequency conversion for overseas home appliances is high, and the company's share of overseas business continues to increase. In the global market, regions such as Africa, Latin America, North America, and Eastern Europe still account for less than 50% of AC inverters, and there is plenty of room for replacement under the trend of energy saving and emission reduction.
The company's share of overseas revenue in 2022 increased 5pp to 31% year-on-year, with India accounting for a relatively high share of inverter appliances.
The company already has production capacity in India and serves large local home appliance companies, etc., and is expected to open up more variable frequency markets in the home appliance category with its advantages in localized production and customer resource channels.
Domestic industrial control substitution is developing steadily, and there is high potential for growth in many downstream fields. Along with the gradual maturity of local brand technology and reliability, the domestic PLC/servo/low voltage inverter localization rate reached 14%/46%/42% respectively in 2022, and the share increased further. The company uses its experience in segmenting the industrial control industry to expand construction machinery and wind power, and outline a new growth curve for the industrial automation business: construction machinery benefits from increased oil to electricity penetration rates such as forklifts, etc., and enjoys product release from large customers; wind power laid out propeller systems earlier, has a clear competitive landscape, and benefits from a boost in installed demand in the industry.
The tram business has seen a sharp increase, and profits are expected to return to an upward trend. The company uses power electronics technology to develop businesses such as electric drives and vehicle power supplies from the same source, adjusts the original single major customer business model, and accumulates customers such as BAIC, Zero Auto, and Nacha. Orders are stable, and tram revenue increased 75% year-on-year in 2022. Benefiting from the scale effect, profits are expected to recover.
Profit forecasts and investment recommendations. The company's revenue for 2023-2025 is estimated to be 7.45 billion yuan, 9.7 billion yuan, and 12.24 billion yuan respectively. The net profit growth rate for the next three years will be 60.1%/37.1%/27.5%, respectively. The company is rooted in the power electronics industry, its business has blossomed more and more, actively expanded new customers and new fields, fully benefited from the high prosperity of many downstream industries, and promoted the continuous improvement of the company's performance. The company was given 30 times PE in 2023, corresponding to a target price of 45.3 yuan, and raised to a “buy” rating.
Risk warning: risk of fluctuations in macroeconomic conditions; risk of structural prices and supply of raw materials; risk of exchange rate fluctuations affecting the company's overseas business; risk that downstream demand falls short of expectations; risk that new product development and delivery falls short of expectations.