The company's 23Q3 performance as a whole is in line with our expectations, and the growth mainly comes from the fact that the optical storage of high-frequency inductors in the new energy business and the prosperity downstream of the new energy transformer continue to exceed expectations. We believe that the company sees the trend of the new energy industry, is the leader of new energy inductors and transformers, and will continue to benefit from the dual development strategy of "new energy + data center" in the future. Considering that the company is still in a period of rapid growth, we maintain the company's EPS forecast of RMB 0.63 for 2023-2025. Using the segment valuation method, we predict that the market value of the company's energy business in 2023 is 5.33 billion yuan, and the market value of lighting business is about 1.52 billion yuan, with a total market capitalization of about 6.85 billion yuan, corresponding to 28 times PE in 2023, maintaining the target price of 18 yuan and maintaining the "buy" rating.

The continued high growth of new energy business drives the company's performance growth, which is in line with our expectations as a whole. The company reported that 2023Q1-Q3 realized revenue of 2.518 billion yuan (year-on-year + 22.5%), net profit of 165 million yuan (year-on-year + 15.6%) and non-return net profit of 155 million yuan (year-on-year + 18.4%). In a single quarter, 2023Q3 realized revenue, net profit and non-return net profit of 945 million yuan / 75 million yuan / 70 million yuan respectively, which was + 41.4% / 28.6% / 22.7% respectively compared with the same period last year. Although the decline in the performance of the lighting business in the first half of the year was a drag on the company's overall performance due to weak overseas demand, it benefited from the fact that the optical storage of high-frequency inductors and the downstream of new energy transformers in the company's new energy business continued to exceed expectations. in particular, the continued strong demand for overseas transformers made up for the decline in lighting business, the company's overall performance still maintained steady growth, and the overall performance was in line with our expectations.

Profitability repair, gross profit margin, net profit margin year-on-year + 0.74pct,-0.35pct. The company's 2023Q1-Q3 gross profit margin 21.34%, year-on-year + 0.74 PCT; net profit margin 6.67%, year-on-year-0.35pct, profitability continues to repair. 2023Q3 gross margin 24.47%, year-on-year + 1.34pcts, month-on-month + 3.44pcts; net profit 8.22%, year-on-year-0.57pct, month-on-month + 0.58pct. The overall expense rate of 2023Q1-Q3 has increased, but it has not changed much. The company's sales / management / finance / R & D expense rates are respectively year-on-year-0.37/+0.0/+0.9/+0.1pct to 2.36% and 5.58% to 5.58% and 0.39% to 4.84%. The increase in financial expenses is mainly due to the increase in interest on loans in the current period and the decrease in exchange rate gains caused by exchange rate fluctuations.

The Dingzeng project was successfully issued, laying the foundation for development. In August 2023, the company successfully completed the private offering of shares in 2022, raising a total of 1.183 billion yuan, and a total of 17 investors were allotted in this issue. including Hengjian Investment in Jizhou District Innovation guidance Fund, China Electric Power Company, Yueke Capital, Taikang Fund, Caitong Fund, Guotai Junan, Galaxy Securities and other state-owned capital, funds, securities companies institutional investors. According to the company's private stock offering plan for 2022, the funds raised will be invested in the intelligent manufacturing construction project of medium voltage DC power supply system, the construction project of digital plant for smart box transformation and energy storage products, the construction project of R & D center and supplementary current funds. with the implementation of the fund-raising project, it will bring new development power to the company's expansion in the field of new energy.

We will increase capital to build a production base in Mexico and continue to expand overseas. On October 31, 2023, the company announced that based on the needs of the company's business development and the layout of overseas production bases, it is proposed to use its own funds or self-raised funds to invest no more than US $86 million in its wholly-owned subsidiary, Los Angeles Igor (selling transformer and power products), to invest in the new automatic production base in Mexico, the planned products are mainly new energy products, and the construction period is proposed for 2 years. Mexico, as a "nearshore" country of the United States, has outstanding advantages in trade policy, logistics and labor. Investing in a new production base in Mexico can be closer to customers in North America and better promote the company to open up new customers in North America. improving the stability and timeliness of the company's supply chain in the North American market will also help to enhance the brand image and continue to expand global business opportunities.

The overseas demand for transformers is strong, and the supply and demand in the short and medium term is tight. Europe and the United States are the main incremental markets for the export of domestic transformers. The total export amount and average price of transformers in China have shown a rapid upward trend in the past two years. According to PTR estimates, more than 1 million distribution transformers are currently sold in the United States every year, of which only one beat 3 transformer is used to increase capacity, and 2 pound 3 transformer is used to replace old transformers in the power grid, which is in great demand. However, there are few local transformer suppliers, especially oriented silicon steel suppliers in Europe and the United States, and because of the war between Russia and Ukraine, local enterprises are restricted not to use Russian steel, resulting in rising raw material costs and tight supply; at the same time, because the transformer production line has a large fixed investment in the early stage, the production time is long, and the expansion willingness of local suppliers is low, the existing production capacity can not meet the local demand. Domestic transformer enterprises have reached / are close to full production. According to the announcement of transformer companies, the capacity utilization rate of transformers in all enterprises is generally more than 80% in 2022. Due to the long production expansion cycle of transformers, we believe that the tight situation of supply and demand will continue in the short and medium term.

Risk factors: the downstream development is not as expected; the introduction of new customers is not as expected; the sharp rise in raw material prices leads to the decline of the company's profitability; the increasing risk of competition; the risk of the loss of major customers.

Earnings forecast, valuation and rating: 23Q3's performance is in line with our expectations, the company is focused on the trend of the new energy industry, is the leader of new energy inductors and transformers, and will continue to benefit from the "new energy + data center" dual development strategy in the future. In terms of new energy: the competitiveness of the company's optical and storage business continues to improve. On the one hand, we expect to benefit from the industry growth beta of optical storage capacity, on the other hand, it will continue to increase market share by virtue of comprehensive advantages to produce Alpha. While the optical storage has the same origin as the on-board technology, we expect that the company will take advantage of domestic efforts to replace Dongfeng and become the leader in the vehicle field by virtue of its continuous leading technology, and the company in the field of charging piles will benefit from the development of binding major customers. Data center: Panama power supply has better performance and is a next-generation data center power supply solution to replace the traditional UPS and HVDC. The company is BABA's only designated supplier of phase-shifting transformers, and we expect to fully benefit from the development of the industry in the future. Considering that the company is still in a period of rapid growth, the company's EPS forecast for 2023-2025 is 0.63 soybean 1.03 yuan. Using segment valuation method, for energy business, refer to the PE valuation of comparable company in 2023 (Solar Power 22.9x, BYD 29.8x, Shunluo 25.5x, valuation are all predicted by CITIC Research Department), the average PE of comparable company in 2023 is 26.6x. Considering the steady growth of the company's high-frequency inductor in photovoltaic energy storage and the outbreak of new energy vehicle inductance, and the company has completed a new round of fixed growth in August 2023, we give the company's energy business 2023 30xPE valuation. We estimate that the company's net profit in 2023 is about 178 million yuan, corresponding to a market capitalization of about 5.33 billion yuan. For lighting business, with reference to the average 22.2xPE valuation of comparable companies in 2023 (Foshan Lighting 24.5x, Liad 19.9x, valuations are all predicted by CITIC Research Department), considering that the company is deeply bound to the global lighting leader in lighting business, we give the lighting business 22xPE valuation in 2023, we expect the company's net profit in 2023 to be about 69 million yuan, corresponding to a market capitalization of about 1.52 billion yuan, with a total market capitalization of about 6.85 billion yuan. Maintain the target price of 18 yuan and maintain the "buy" rating corresponding to 28 times PE in 2023.