3Q23 performance is basically in line with our expectations.

The company announced 3Q23 results: 1-3Q23 company income 799 million yuan, year-on-year + 3.06%; return mother net profit 178 million yuan, year-on-year + 7.98%; deduction of non-return mother net profit 174 million yuan, year-on-year + 19.73%. Corresponding to 3Q23, the company achieved income of 279 million yuan, + 8.76% year-on-year; net profit of 61 million yuan,-6.29%; and non-return net profit of 61 million yuan,-3.15% year-on-year.

The company's performance is basically in line with our expectations, but the exchange factor causes a certain disturbance to the company's earnings.

At the end of overseas destocking, the company's revenue continued to improve month-on-month: 1) due to the influence of overseas destocking, the company's revenue declined year-on-year in 3Q22-1Q23 for three consecutive quarters, until 2Q23 became a regular employee.

3Q23's revenue grew faster than the same period last year, and revenue also grew by 6% month-on-month. 2) in terms of industry, according to industry online data, the export volume of 1-3Q23 washing machines in China is + 18% / 46% / 39% respectively compared with the same period last year.

3) as the leader in the field of drainage pumps, the company's market share remains stable. We expect the company's performance to maintain steady growth as the replenishment order process continues after the end of overseas destocking.

Profit margin is affected by the downward price of raw materials, exchange rate and other factors: 1) the company has core competitiveness in aluminum copper technology. 3Q23 LME aluminum spot settlement price-8.5% year-on-year, driving the company's 3Q23 gross profit margin year-on-year + 5.4ppt to 37.1%. 2) in addition, the company's export accounts for a relatively high proportion, and the exchange factor also disturbs the company's profit margin. 3) affected by the above factors, the company's 3Q23 achieved a net return rate of 21.9%, year-on-year / month-on-month, respectively-3.5ppt/-4.4ppt, but it is still at a healthy level in the long run.

Trend of development

Actively lay out the core parts business and promote diversified growth: 1) Tongchuan Technology, a subsidiary, has built certain technical advantages in the field of harmonic reducer by positively developing the reducer tooth profile and processing technology of 3D curved surface conjugate double circular arc tooth profile. According to the company's website 1, Tongchuan completed tens of millions of yuan A round financing in August this year. 2) the participating company Youjuxin material (19.59% as of September this year) has declared listed materials, which are mainly engaged in the production and sales of special engineering plastics poly (aryl ether sulfone). 3) New Energy Zero Plate, the company announced that electronic circulation pumps, AC / DC charging piles, micro-charging series products have begun mass production and sale. 4) the company announced that the participating company Heberson (5.52% as of July this year) has the production capacity of six-axis force sensors, which has also attracted some market attention.

Profit forecast and valuation

Due to fluctuations in corporate profits caused by changes in exchange rates, we cut net profits by 8 per cent, 10 per cent to 215 million yuan and 231 million yuan in 2023 and 2024. The current share price corresponds to 21.3 times 2023 earnings and 19.8 times 2024 earnings. Maintain an industry rating that outperforms. Due to the upside of the valuation hub of the industry, we maintain a target price of 10.12 yuan, corresponding to 28.4 times 2023 price-to-earnings ratio and 26.5 times 2024 price-to-earnings ratio, which has 34% upside space compared with the current stock price.

Risk

The risk of new business development is lower than expected, the risk of market demand fluctuation, the risk of exchange rate fluctuation.