1H23 performance is lower than we expected.

The company announced 1H23 results: revenue was 600 million yuan, up 28.9% over the same period last year, and net profit at home was 50 million yuan, down 11.7% from the same period last year. We estimated that the income during the 2Q23 period was about 330 million yuan, an increase of 18.2% over the same period last year, and the net profit at home was about 30 million yuan, down 22.5%. Due to the lower gross profit margin and the increase in expenses, the overall net profit was lower than we expected.

Trend of development

The company grasps the opportunity of emerging industry, and the growth rate of machine tool business is eye-catching. During the 1H23 period, the company's revenue from industrial control / machine tool products was about 5.5 billion yuan, an increase of 23% and 521% over the same period last year. According to MIR, the company's servo revenue during the 1H23 period was about 470 million yuan, with a market share of 2.2%, an increase in 0.6ppt compared with the same period last year. The company continues to implement the industry focus strategy, in photovoltaic, lithium, robot, 3C, laser and other advanced manufacturing industries.

The product end company pushes through the old and brings forth the new, and continues to develop new products. 1H23 company launched Y7S series servo, and standard equipped with STO safety, dynamic braking and other rich functions; M series controller officially launched, can be a comprehensive 64-axis small and medium-sized applications, and support a variety of programming languages; in addition, Wechuan photoelectric sensor HSESF appears on the market, can replace 70% of the traditional photoelectric sensor, covering most detection scenes.

Market-end companies actively layout overseas, and strengthen the construction of dealers. During the 1H23 period, the company expanded its overseas business to Germany, Poland, Spain, Turkey, etc., and prepared to set up a subsidiary in Singapore. In addition, a global dealer conference was held in June this year to strengthen the construction of overseas channels.

The company's gross profit margin / net profit margin 2Q23 improved, and the construction of sales channels led to an increase in investment. The company's gross margin / net profit margin improved 1.4ppt/0.9ppt respectively during the 2Q23 period, but still fell 2.3ppt/4.6ppt to 30.4% and 8.7% compared with the same period last year. As the company continued to vigorously develop dealers, absorb experienced practitioners and set up industry lines during the reporting period, the company's distribution team also continued to expand. Corresponding to the sales expense rate during the 2Q23 period, the sales expense rate increased by 2.7ppt, which increased to 10.1% compared with the same period last year. In addition, the company's management expense rate and R & D expense rate changed from + 0.2/0.9ppt to 3.5% 0.8/-0.5ppt to 11.0%, respectively.

Profit forecast and valuation

With the higher-than-expected cost investment and the pressure on gross profit margin, we cut the 24-year net profit of 2023 Universe by 38% 31% to 1.2 billion USD, and the current share price corresponds to the 24-year 46.1x/27.1x price-to-earnings ratio of 2023 Universe. Maintain the outperform industry rating, but due to the recent upward move in the valuation center of the sector, we maintain the price tag of 45 yuan, corresponding to the price-to-earnings ratio of 56.8company33.4x in 2023. Compared with the current share price, there is still 23% room to rise.

Risk

Macroeconomic fluctuations, intensified competition in the industry, the progress of new products is not as expected.