1H23's performance met our expectations

The company announced 1H23 results: 1H23 company revenue of 520 million yuan, +0.2% year on year; net profit of 116 million yuan, +17.4% year on year; net profit of 114 million yuan after deducting non-return net profit of 114 million yuan, +36.9% year on year. Corresponding to 2Q23, the company achieved revenue of 264 million yuan, +0.8% year on year; net profit of 69 million yuan, +27.5% year on year; net profit of 66 million yuan after deducting non-return net profit of 66 million yuan, +47.9% year on year. The company's performance is in line with previous performance forecasts, as well as our expectations.

The main business performance is steady: 1) 1H23's household appliance parts revenue was +5.5% year-on-year, mainly benefiting from the increase in exports of the domestic washing machine industry due to lower shipping charges and overseas inventory removal; however, since May of this year, the subsidiary Tongchuan Technology was no longer listed, so 1H23's overall revenue was basically the same. 2) 1H23's standard drain pump/washing pump/condenser pump revenue was +1.2%/+26.9%/+29.6% year-on-year, respectively, and the proportion of washing and condensing pump products with higher gross margin increased.

Profit margin benefited from declining raw material costs, exchange rates and other factors: 1) 2Q23 LME aluminum spot settlement price was -21.4% year-on-year, driving the company's 1H23 home appliance parts business gross margin +5.4ppt to 34.6% year-on-year.

2) 2Q23 The company's sales/management/R&D expenses ratio was +0.4ppt/-0.4ppt/-0.8ppt year on year, respectively, to 3.7%/3.4%/4.0%. The decline in R&D expenses was mainly due to changes in the R&D project cycle, and the rest of the expenses were relatively stable. 3) The company's 1H23 exchange earnings were 112 million yuan; Tongchuan did not combine factors such as revaluation of asset values to form 1H23 million yuan investment income of 026 million yuan. 4) Affected by the above factors, the company's 2Q23/1H23 net return interest rate was +5.5pp/+3.3ppt to 26.3%/22.4%, respectively.

Development trends

Actively lay out the core components business and promote diversified growth: 1) The subsidiary Tongchuan Technology has technical advantages in the fields of domestically produced harmonic speed reducers and mechatronic joints. According to the company's official website, Tongchuan completed Series A financing of tens of millions of yuan in August this year, and will continue to make efforts in the field of core components for humanoid robots in the future. 2) The participating company Youju New Materials (19.59% of the company's shares as of July this year) has applied for listing materials. It is mainly engaged in the production and sale of polyaryl ether sulfone, a special engineering plastic. According to the official website of the Shenzhen Stock Exchange, it is currently in the review stage. 3) In the NEV sector, the company announced that mass production and sales of electronic circulation pumps, AC/DC charging piles, and micro-charging series products have begun. 4) The company announced that the participating company Hibberson (holding 5.52% of the company's shares as of July this year) has the production capacity of six-dimensional force sensors, which has also attracted some market attention.

Profit forecasting and valuation

We have kept our earnings forecasts for 2023 and 2024 largely unchanged. The current stock price corresponds to 21 times the 2023 price-earnings ratio and 19 times the 2024 price-earnings ratio. Maintain outperforming industry ratings. Due to the strong growth of the company's emerging businesses, such as harmonic speed reducers, which are driving up the overall valuation, we raised our target price by 15% to 10.12 yuan, corresponding to 26 times the 2023 price-earnings ratio and 24 times the 2024 price-earnings ratio, which has 26% upside compared to the current stock price.

risks

New business development falls short of expectations, risk of market demand fluctuation, risk of exchange rate fluctuation.