Affected by increased competition in the traditional downstream home appliance industry, the company's profits in the first half of the year were under slight pressure. The company released its 2023 semi-annual report. On the revenue side, the company's 2023H1 revenue was 179 million yuan, +6.47% year-on-year; Q2's revenue was 90 million yuan, an increase of 11.41% year-on-year; mainly driven by continuing to deepen existing fields such as home appliances and cultivate and expand emerging application markets such as automobiles. On the profit side, the company's 2023H1 net profit was 83 million yuan, -0.55% year on year; Q2 net profit was 43 million yuan, down 4.82% year on year; we think it is mainly due to simultaneous passive increases in costs and the intensification of competition in the home appliance industry. It is expected that in the future, with the gradual expansion of downstream customers such as automobiles and robots, profitability will increase.

Continue to increase investment in R&D, and implement restricted stock incentive plans to add additional shares to pay for expenses. The company's 2023H1 sales expenses rate was 4.24%, year-on-year +1.94 pct, mainly due to the continuous marketing network expansion and promotion and marketing team expansion; the management cost rate was 6.08%, compared to 1.11 pct, mainly due to the increase in employee remuneration; the financial expense rate was -4.41%, year-on-year -2.22pct, mainly due to increased interest income; the R&D expense rate was 18.10%, 5.37 pct. The main reason was that the company adopted a dedicated chip design route, which did not match the mature IP core and software in the market. Independent research and development by a team is required, and BLDC motor drive control chips are difficult and expensive. In the first half of 2023, the company continued to strengthen R&D investment and R&D team building efforts. Furthermore, in August 2023, the company implemented a restricted stock incentive plan for key technology (business) personnel, adding additional share payment fees, leading to an increase in sales, management and R&D expenses.

The company will benefit from the accelerated penetration of BLDC motors into the automotive and robotics sectors. The driving layer MCU determines the actual effect of the robot's “brain” level core algorithm to the execution layer. MCUs optimized for robots usually include a variety of functions. The execution of functions of multiple robot instructions requires a higher-performance MCU with peripherals and accelerators. Processing speed is essential to support high-precision control of motor position, direction, speed, and torque in the robot; BLDC motor performance advantages are obvious, finding a place of use in robot applications, and accelerating penetration in the field of robotics. Thus, the BLDC drive control chip market space has been opened up. In addition, BLDC motor drive control chips need to be used in many places such as pumps and fans in automobiles, when domestically produced ones are replaced.

Investment suggestions: We expect the company to achieve revenue of 422/542/689 million yuan in 2023-2025, net profit of 176/234/296 million yuan, and corresponding PE of 52.0/39.1/30.9x. In the long run, the company is expected to fully enjoy leading valuation premiums and maintain a “increase in holdings” rating.

Risk warning: Manufacturing production expansion falls short of expectations, industry competition is seriously intensifying, there is a risk of macroeconomic fluctuations, R&D risks falling short of expectations, and downstream customer certification falls short of expectations.