Main points of investment

Deep ploughing clean environmental protection and porcelain insulators, steady performance growth & profit improvement. The company is deeply engaged in the dual main industries of "clean and environmental protection" and "porcelain insulators", with the common development of precision bearings, abrasives, precision instruments and other diversified industries. The company has 8 wholly-owned and holding enterprises, such as national innovative pilot enterprises, national key high-tech enterprises Jiangsu Sujing, high-tech enterprises Suzhou bearing, Suzhou electric porcelain, Suzhou Yiguang, far East grinding wheel, high-tech electric porcelain, Shanghai Beifen, etc. From 2018 to 2022, the net profit of homing grew by 22%, and the net profit rate of sales increased from 4.70% in 2016 to 6.52% in 2022.

There is a broad space for clean and environmental protection, and new industries & self-developed products contribute to growth momentum. The company's clean environmental protection business is operated by Jiangsu Sujing, a wholly-owned subsidiary, and Shanghai Beifen, a holding subsidiary. 1) Semiconductor & new energy & large health industry expansion, clean room demand expansion: clean room downstream applications mainly include electronic semiconductors, food and medicine, etc., with 54% of electronic semiconductors accounting for the largest downstream in 2021.

The expansion of production in emerging industries has led to the release of demand for clean environmental protection. We estimate that the global / domestic clean room engineering market space will increase by 4.1% in 2022-2025. The global / domestic market space in 2025 will reach 81,677.8 billion yuan respectively. Jiangsu Sujing develops the three emerging fields of new energy, grand health and electronic information, and the proportion of 2023H1 contracts accounts for more than 2. 3%. 2) the policy drives the development of the environmental monitoring industry, and the company takes advantage of the ultra-low emission transformation: Shanghai Beifen has cooperated with DURAG of Germany for 23 years, has the right to sell all its monitoring products, and is the core partner of DURAG in China. At the same time, the company gradually increased the proportion of self-developed products. The company's dust meter products occupy a certain market share in the five major domestic power systems, and actively develop the non-electricity market.

With the expansion of porcelain insulators in power grid construction, Suzhou electric porcelain UHV market share is the second. The construction of the power grid has led to the demand for high-voltage insulators for power transmission and transformation. The national network plans to invest 380 billion yuan in UHV during the 14th five-year Plan, an increase of 35.7 percent over the 13th five-year Plan period. UHV construction is expected to speed up after slowing down in 2022.

From 2020 to 2022, the permeability of UHV porcelain insulators is 61.6%, the technical barrier is high, and the pattern is relatively stable. In the 2020-2023H1 national network bidding for six-traffic and three-direct projects, Suzhou Electric porcelain, a subsidiary, ranked second in terms of market share of UHV AC / DC porcelain insulators with a market share of 27.6% / 44.2%. After the Suqian project reaches production, the annual output will reach more than 60,000 tons, ensuring the landing of follow-up orders.

Holding domestic needle roller bearing faucet, downstream widely used domestic alternative to speed up. Suzhou bearing is the leading enterprise in needle roller bearing industry. For nearly 60 years, Suzhou bearings are widely used in automotive steering system, braking system, torque management system, new energy electric drive system, engine, gearbox and other important assemblies, as well as industrial automation, high-end equipment, robots, construction machinery, household appliances, power tools, aerospace and national defense industry and other fields. The company seizes the opportunity of localization and has established a sustained and stable supporting relationship with high-quality customers.

Profit forecast and investment rating: the expansion of emerging industries & the promotion of power grid construction, the double main industry is expected to release increment. We estimate that the company's net profit from 2023 to 2025 will be RMB 1.81 million, which is + 11%, 14% and 16% compared with the same period last year, corresponding to the current PE of 22-19-17, which will be covered for the first time and given the rating of "overweight".

Risk tips: lower-than-expected expansion of production, intensified competition in the industry, the risk of macroeconomic fluctuations and so on.