Incident: The company released its 2023 semi-annual report. 2023H1 achieved revenue of 1,469 million yuan, an increase of 0.3% over the previous year, and net profit of 167 million yuan, an increase of 8.2% over the previous year. Among them, in 2023Q2, the company achieved revenue of 764 million yuan, an increase of 2.7% over the previous year, and net profit of 95.65 million yuan, an increase of 12.1% over the previous year.

Profits have been growing steadily, and profitability has increased marginally. 2023H1, thanks to factors such as the company's product structure optimization and exchange rate, reached a record high of 30.7%, an increase of 2.7 pct over the previous year. By business, revenue from the auto parts, medical, and small household appliances sectors maintained steady growth, with increases of 22.4%, 3.7%, and 14.3% respectively; the traditional household appliances sector (air conditioners, washing machines, refrigerators) achieved revenue of 732 million yuan, down 2.0% year on year; the industrial control sector was affected by the postponement of some orders for valve products in the first half of the year to the second half of the year. Revenue in the first half of the year fell 6.6% year-on-year. It is expected that industrial pumps and valves can achieve a high month-on-month growth rate in the second half of the year.

Acquire 59.1% of the shares of Wuxi Shike to enhance the competitive advantage of the NEV thermal management business. On July 31, the company's official WeChat account released news that the company obtained 59.09% of the shares of Wuxi Shike Micromotor Co., Ltd. through a share transfer and capital increase. Wuxi Shike is the world's leading supplier of motors for air conditioning compressors for new energy vehicles, with revenue of nearly 70 million yuan in 2022. It has already entered the supply chains of leading car companies at home and abroad. Customers include Daimler, India's TATA, Yutong Bus, BYD, Chery, Dongfeng Motor, etc., and its products cover a variety of passenger and commercial models, and have all achieved mass production. We believe this acquisition will help the company further improve its NEV thermal management product line; at the same time, Wuxi Shike's air conditioning compressor motors are expected to penetrate the energy storage industry and form a collaboration with the company's energy storage heat management products.

The robot market space is huge, and the company's products are highly competitive. After the robot industry entered the stage of large-scale development, the market space was huge. In the field of humanoid robots, the company can provide products such as sliding screws, planetary roller screws, hollow cup motors, and precision gearboxes. Among them, planetary roller screws are under development and are mainly used for heavy load bionic muscle structures. Currently, the company is in orderly contact with many robot manufacturers, and some products have been recognized by customers during the sample testing stage. In the field of robot dogs, the company has received an order for 60,000 sets from a customer in Nanjing and is in mass production of planetary actuators. We believe that as a professional manufacturer, the company has outstanding technical advantages and is expected to continue to increase its market share.

Investment recommendations and valuations: The company's revenue from 2023 to 2025 is estimated to be 3,640 billion yuan, 4.336 billion yuan, and 4.857 billion yuan respectively. Revenue growth rates will reach 25.5%, 19.1%, and 12.0%, respectively, and net profit of 397 million yuan, 581 million yuan, and 694 million yuan respectively. The growth rates will reach 53.4%, 46.5%, and 19.4% respectively, maintaining the “increase in holdings” investment rating.

Risk warning: The development of the robot industry falls short of expectations; the sales volume of home appliances falls; the risk of rising raw material prices.