Industry level: due to the trend of intelligent water affairs, there is a broad space for the rare earth resources industry. 1) Water: competition pattern: the traditional water meter enterprises are in the labor pains of the manufacturing industry. Due to the fierce competition, there is a price war, and the trend is gradually developing towards intelligence and platform. Industry scale: the overall scale is small and the growth rate is steady. It is estimated that the intelligent water market will be 18.8 billion yuan in 2023, 28 billion yuan in 2027, and 11% of CAGR. Policy orientation: demand is expected to continue to grow, benefiting from policy-side support for intelligence and reducing pipe network leakage rates. Future development: stock replacement + new demand leads to the improvement of the structure of the water meter industry and the steady growth of the industry scale. 2) rare earths: at present, the upstream state-owned enterprises are dominant and the downstream demand is extensive. China's rare earth industry chain is worth about 90 billion yuan in 2018. Quantity: by 2019, China's rare earth reserves were 44 million tons, accounting for the highest 36.7% of the world. China's output in 2021 was 168000 tons, accounting for 60% of the world's total. Rare earth production is expected to be 240000 tons (yoy+14%) in 2023, a steady growth. Price: we expect that the price has gradually stabilized at the bottom, and the further recovery is expected to lead to a rise in corporate profitability in the future. Recycling industry:

At present, the scale of the industry is relatively small, and the market share is expected to further increase. In 2020, CR5 accounts for 50%. CR10 accounts for 71%, of which Tianma occupies 13%, ranking second, and Mikawa Wisdom holds 16.3%.

Two-wheel drive development: wading plate continues to upgrade, rare earth plate has a bright future. 1) Water: one of the leading manufacturers of veteran water meters, with strong products, R & D and well-developed marketing network, with a market share of 10% in 2022. 2) rare earths: the rare earth resources recovery industry began to be distributed in 2018, the scale layout of mergers and acquisitions continued, and the production capacity of technological transformation continued to expand. 1. Tianhe permanent magnet: the production capacity is 1000 tons / year in 2022 and is expected to reach 3000 tons / year in 2023; 2. Jisheng Science and Technology: the output in 2022 is 2300 tons, and the production capacity is expected to reach 3300 tons / year by the end of 2024. 3. Tianma: after the technical transformation is completed and put into production in the future, the production capacity of praseodymium oxide and neodymium oxide will exceed 10,000 tons, and the production capacity of heavy rare earths such as terbium and dysprosium oxide will exceed 1000 tons, which can rank first in the industry of rare earth resources recovery.

Profit forecast: we estimate that the company's EPS in 2023-2025 will be 0.3,0.4,0.5 yuan respectively, and the corresponding PE will be 18,14,10 times respectively. Based on the company's deep cultivation in the water meter industry for many years and good development prospects in the rare earth industry, the company will be given a "buy" rating for the first time.

Risk hints: the risk of fluctuations in macroeconomic factors; the risk of declining profit margins due to intensified competition in the industry; and the risk of policies leading to new products and the development of new areas.